S&P Upgrades Cliffs Natural Resources (CLF) to 'CCC+'; Outlook Remains Negative

Standard & Poor's Ratings Services said it raised its corporate credit rating on Cliffs Natural Resources Inc. (NYSE: CLF) to 'CCC+' from 'SD'. The outlook is negative. At the same time, we assigned our 'B' issue-level rating to the company's new 1.5-lien notes. The recovery rating is '1', indicating our expectation of very high (90% to 100%) recovery in the event of a payment default.

In addition, we lowered our issue-level rating on the company's existing first-lien notes to 'B' from 'BB-'. The recovery rating is unchanged at '1' indicating our expectation of very high (90% to 100%) recovery in the event of a payment default.

We also raised our issue-level rating on the company's existing second-lien notes to 'CCC+' from 'D' to indicate the completed exchange. We revised the recovery rating to '3' from '1' indicating our expectation of meaningful (50% to 70%; lower half of the range) recovery in the event of a payment default.

Finally, we raised our issue-level rating on the company's senior unsecured debt to 'CCC-' from 'D' to indicate the completed exchange. We revised the recovery rating to '6' from '4' indicating our expectation of negligible (0% to 10%) recovery in the event of a payment default.

"The negative outlook reflects our view that although Cliffs' liquidity is adequate, it could deteriorate notably within the next year," said Standard & Poor's credit analyst Chiza Vitta. "This would depend on various factors, including customer contract renegotiations, the conclusion of the unwinding of Canadian operations, and whether covenant cushions restrict ABL facility availability. We believe there is a one-in-three chance that, within a year, Cliffs' liquidity could diminish to a level that would warrant a downgrade."

We could lower the rating in the coming year if Cliffs' liquidity position continues to deteriorate such that we envision a specific default scenario in the subsequent year. This could happen if Cliffs renegotiates the significant portion of contracts expiring within the year at notably lower levels. These factors would be further exacerbated if covenant limitations restrict access to the revolving credit facility.

We could raise the rating if the company sustains EBITDA interest coverage above 1x while maintaining adequate or better liquidity--particularly if all risks associated with the discontinued business lines are eliminated and especially if we expect discretionary cash flow to remain positive.

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