Market players are eager to lend Cleveland-Cliffs (CLF 8.63%) money, so much so that a planned debt issue was quickly and substantially upsized. That impressed the market enough to send the company's equity skyward, and in late-session action the large steel maker's stock was up by 9% in price. That performance was notably hotter than that of the S&P 500 index, which was rising by 0.6%.
A bigger issue
Tuesday morning before market open, Cleveland-Cliffs announced that it would float a fresh issue of senior unsecured guaranteed notes (a type of corporate bond). Then, very shortly after market close that day, it announced it had upsized the issue by nearly 40%.
Image source: Getty Images.
In the initial announcement, Cleveland-Cliffs said the flotation would consist of $200 million aggregate principal amount of such notes maturing in 2034. This was to be an extension of a previous issue of such securities and would pay the same interest rate of just under 7.63%.
In the follow-up to the announcement, Cleveland-Cliffs said it was boosting the aggregate principal amount to $275 million. These are to be issued at a price of almost 102.8% of their principal amount, to land at an implied yield of slightly below 7% for investors.
The company said it will use its proceeds from the issue to retire debt incurred under an asset-based lending facility.
Borrowing to grow
Owning, running, and maintaining a huge steel making operation is a vastly expensive undertaking, so debt financing is typically necessary in the industry. That, plus the fact that Cleveland-Cliffs loaded up on it significantly with its 2024 acquisition of Canadian peer Stelco has pushed its total long-term debt past $7.7 billion (as of the end of June).
The new flotation will be just a drop in that bucket, yet it shows that investors have confidence in the company to satisfy such financial obligations.
