JOHANNESBURG (miningweekly.com) – US coal and iron-ore producer Cliffs Natural Resources announced on Monday that it had entered into an agreement to amend its existing $1.75-billion unsecured revolving credit facility with its syndicate of banking partners.
“The execution of this amendment with the unanimous support of our lender group highlights the excellent relationships we maintain with our banking partners and the confidence they have in Cliffs’ management team,” said Cliffs executive VP and CFO Terry Paradie. “We also view this as an endorsement of the underlying fundamentals of Cliffs’ long-term strategy. Our banking partners understand that Cliffs operates in a highly cyclical industry and, with this amendment, they have pledged their continued support of the company.”
The amendment agreement replaced the existing leverage covenant ratio with a debt-to-capitalisation ratio for the life of the facility to provide the company with a more consistent source of liquidity.
“This amended facility retains substantial financial flexibility for management to continue making prudent business decisions during this period of pricing volatility. Unlike the prior amendment completed in the first quarter of 2013, this amendment addresses the leverage covenant for the life of the facility, while also retaining the full $1.75-billion facility size and the existing maturity date of October 16, 2017,” Cliffs explained in a statement.
The new amended terms are effective June 30, 2014, and received the unanimous support of the entire lender group, despite requiring only greater than 50% approval.
Cliffs further stated that it had undertaken proactive measures to manage its debt and liquidity profile to further strengthen its balance sheet as iron-ore and metallurgical coal prices continued to be volatile.
The company’s management team persisted in taking the necessary steps to ensure the organisation could operate efficiently and maintain consistent access to liquidity through an industry-wide cyclical downturn. “The completion of the amendment was further evidence of management’s commitment to its balance sheet and liquidity management objectives,” Cliffs added.
The amended terms replace the current leverage covenant ratio of debt-to-earnings before interest, taxes, depreciation and amortisation (Ebitda) less than 3.5 times with a debt-to-capitalisation ratio of less than 45%.
The amendment agreement also increases the current Ebitda-to-interest covenant to a minimum requirement ratio of 3.5 times. As of March 31, 2014, Cliffs’ ratio was well above this minimum requirement ratio. Other changes contemplated in the amendment agreement included the establishment of a net leverage incurrence ratio related to dividend increases, share repurchases, investments and acquisitions, as well as a tighter restriction on Cliff’s' ability to issue priority debt.
The company tested each of the covenants under a variety of pricing scenarios and was confident in the flexibility that the amended terms provided. Cliffs expected to continue making progress on reducing costs, strengthening its balance sheet with cash flows from operations, while taking a disciplined approach to capital spending. This was all consistent with the company’s target leverage metrics and desire to reduce net debt.