Cliffs Natural Resources (CLF) Ratings Placed on Review for Downgrade by Moody's

August 11, 2016 3:46 PM EDT

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Moody's Investors Service, ("Moody's") placed Cliffs Natural Resources Inc. (NYSE: CLF) Ca Corporate Family Rating (CFR), Ca-PD Probability of Default rating, Caa1 first lien senior secured notes, Ca second lien senior secured notes, and C senior unsecured notes under review for upgrade. The SGL-3 speculative grade liquidity rating remains unchanged.

On Review for Upgrade:

..Issuer: Cliffs Natural Resources Inc.

.... Probability of Default Rating, Placed on Review for Upgrade, currently Ca-PD

.... Corporate Family Rating, Placed on Review for Upgrade, currently Ca

....Senior Secured Regular Bond/Debenture, Placed on Review for Upgrade, currently Ca (LGD3)

....Senior Secured Regular Bond/Debenture, Placed on Review for Upgrade, currently Caa3 (LGD3)

....Senior Secured Regular Bond/Debenture, Placed on Review for Upgrade, currently Caa1 (LGD2)

....Senior Unsecured Regular Bond/Debenture, Placed on Review for Upgrade, currently C (LGD5)

Outlook Actions:

....Outlook, Changed To Rating Under Review From Negative

RATINGS RATIONALE

The review for upgrade results from the improvement in Cliff's operating performance and metrics on strengthening fundamentals in the US steel industry, the dominant market for Cliffs, as well as slightly better expectations for iron ore prices. The company's EBIT margins improved to 14% for the quarter ending June 30, 2016 (including Moody's standard adjustments) compared with 6.3% for the fiscal year ending December 31, 2015. The review also reflects the elimination of the uncertainty surrounding the need to renegotiate material iron ore off take agreements, which were set to expire in late 2016 and early 2017. In the second quarter, Cliffs entered into a new contract with ArcelorMittal to supply up to 10 million long tons per year of iron ore pellets through 2026. Further prompting the review is the company's announcement of an equity offering of up to $345 million; the proceeds of which are expected to be used in part to reduce debt, with the company specifically targeting the 2018 senior unsecured notes.

The review will focus on Cliffs' expected volumes and prices given the contract nature of its USIO segment, expected costs per ton, the company's ability to further reduce costs and the ability of the company to manage to at least break even free cash flow generation. The stock offering and potential subsequent debt reduction together with liquidity will also be important considerations.

The principal methodology used in these ratings was Global Mining Industry published in August 2014. Please see the Ratings Methodologies page on www.moodys.com for a copy of this methodology.



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