Cliffs Natural Resources (CLF) Downgraded to 'Ca' by Moody's; Outlook Negative

Moody's Investors Service, ("Moody's") downgraded the corporate family rating (CFR) of Cliffs Natural Resources Inc's (NYSE: CLF)(Cliffs) to Ca from Caa1 and the probability of default rating (PDR) to Ca-PD from Caa1-PD. At the same time Moody's downgraded the senior secured 1st lien notes to Caa1 from B1, the senior secured 2nd lien notes to Caa3 from B3 and the senior unsecured notes to C from Caa2. The rating for senior unsecured debt issuances under the company's shelf registration was downgraded to (P) C from (P)Caa2. The speculative grade liquidity rating was affirmed at SGL-3. The outlook is negative.

Downgrades:

....Probability of Default Rating, Downgraded to Ca-PD from Caa1-PD

....Corporate Family Rating, Downgraded to Ca from Caa1

....Multiple Seniority Shelf, Downgraded to (P)C from (P)Caa2

....Senior Secured Second Lien Regular Bond/Debenture, Downgraded to Caa3 from B3

....Senior Secured First Lien Regular Bond/Debenture, Downgraded to Caa1 from B1

....Senior Unsecured Regular Bond/Debenture, Downgraded to C from Caa2

Outlook Actions:

....Outlook, Remains Negative

Affirmations:

.... Speculative Grade Liquidity Rating, Affirmed SGL-3

RATINGS RATIONALE

The downgrade incorporates expectations for continued weakening in debt protection metrics and high leverage. We estimate leverage, as measured by the debt/EBITDA ratio of approximately 12x at year-end 2015. The downgrade also acknowledges the company's announcement of an offer to exchange up to $710 million of new 1.5 lien senior secured notes due 2020 for existing senior and second lien notes at a significant discount to par. Moody's views this as a distressed exchange and at closing of the exchange will append an LD designation to Cliffs' PDR, reflecting the view that the debt repurchases qualify as a limited default under Moody's definition of default, which captures events whereby issuers fail to meet debt service obligations outlined in their original debt agreements.

The company's performance deteriorated over the course of 2015 due to weakness in the iron ore markets and the US steel industry, notwithstanding the contract nature of the US iron ore business. We do not expect material improvement in 2016.

The negative outlook incorporates the challenges that continue to face the company in light of weaker iron ore prices and steel industry conditions. The outlook also reflects the need to renegotiate material offtake contracts expiring in December 2016 and January 2017.

The Speculative Grade Liquidity rating of SGL-3 continues to reflect our expectation for adequate liquidity despite increased cash consumption on lower earnings and cash flow generation, as well as higher seasonal working capital requirements in the first several months of 2016.

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