Dec 6 - Standard & Poor's Ratings Services said today that it assigned its
'BBB-' issue-level rating to Cliffs Natural Resources Inc.'s
proposed senior unsecured notes due 2018. The company is issuing the notes under
its shelf registration for well-known and seasoned issuers filed on March 10,
The notes will be senior unsecured obligations and will rank equally with all
of Cliffs' existing and future senior unsecured indebtedness. The company
intends to use the proceeds from this offering to repay a portion of its
existing debts, including its $270 million and $55 million private placement
notes due 2013 and 2015, respectively, as well as for general corporate
purposes including repayment of amounts outstanding under its term loan due
2016 and revolving credit facility due 2017. As of Sept. 30, 2012, $922.1
million was outstanding under the term loan, and $250.0 million was
outstanding under the revolving credit facility
The 'BBB-' corporate credit rating and negative outlook on Cliffs reflect the
combination of what we consider to be the company's "satisfactory" business
risk and "intermediate" financial risk profiles. These assessments reflect the
company's domestic market position in the North American iron ore market, high
barriers to entry, and potential to generate significant cash flow throughout
a cycle. However, our rating also incorporates the highly cyclical nature of
the iron ore business (given exposure to the volatile steel industry), Cliffs'
significant customer concentration, the company's relatively high-cost
structure, and the high capital expenditures associated with bringing its
Eastern Canadian operations fully online.
We recently revised Cliffs' outlook to negative based on our view that 2012
and 2013 operating performance will be worse than we previously expected,
owing to lower-than expected iron ore prices and metallurgical coal prices.
Our base case scenario uses the assumptions that 2013 iron ore prices will
remain around current levels of about $120 per ton. As a result, we anticipate
that Cliffs will generate 2012 and 2013 EBITDA of $1.4 billion and $1.2
billion, respectively, with debt to EBITDA of 3x to 3.5x, which we consider to
be weak for the current rating. Furthermore, we believe Cliffs will burn cash
in 2012, and that cash flow generation in 2013 will be negligible.
RELATED CRITERIA AND RESEARCH
-- Methodology: Business Risk/Financial Risk Matrix Expanded, Sept. 18,
-- Methodology And Assumptions: Liquidity Descriptors For Global
Corporate Issuers, Sept. 28, 2011.
-- Key Credit Factors: Methodology And Assumptions On Risks In the Metals
Industry, June 22, 2009
-- 2008 Corporate Criteria: Analytical Methodology, April 15, 2008
Temporary contact information: Megan Johnston (917-715-3892); Marie Shmaruk
Cliffs Natural Resources Inc.
Corporate credit rating BBB-/Negative/--
Proposed sr unsecured notes due 2017 BBB-