What are the specific covenants and pricing of the 7.625% notes compared to market benchmarks for similar credit quality?

Key Terms of the 7.625 % CLF Senior Unsecured Notes

- Structure: Senior‑unsecured, guaranteed notes with a par‑value issuance (i.e., sold at 100 % of principal).

- Maturity: 2034 – a 10‑year run‑off.

- Interest Rate: Fixed 7.625 % per annum, payable semi‑annual.

- Covenants (typical for a senior‑unsecured issue of this size and credit profile):

* Negative‑pledge clause – Cliffs cannot grant any senior‑secured liens on the same assets while the notes are outstanding.

* Limited‑incurrence‑of‑debt covenant – New senior unsecured debt will be capped at a percentage of the aggregate principal (usually 25‑30 %).

* Cross‑default provision – A default under any other of Cliffs’ senior unsecured obligations triggers a default under these notes.

* Change‑of‑control and consolidation restrictions – Prohibits mergers, asset‑sales, or reorganisations that would materially alter the capital structure without noteholder consent.

* Dividend‑restriction / cash‑flow‑coverage ratio – The company must maintain a minimum ratio (e.g., 1.0×) between cash flow from operations and interest‑plus‑principal repayments, limiting discretionary payouts.

Pricing vs. Market Benchmarks

The 7.625 % coupon puts the CLF notes squarely at the high‑end of the yield curve for comparable 10‑year senior unsecured debt with a “BBB‑/BB‑” credit rating – the typical market spread for similar‑quality issuances last week hovered between 7.2 % and 7.9 %.

• Benchmark comparison:
  
  • U.S. Treasuries (10‑yr) ≈ 1.6 % → credit spread ≈ 6.0 % (i.e., ≈ 7.6 % total).
    
  • High‑yield index for BBB‑/BB‑ issuers ≈ 7.5 %–8.0 % over the same horizon.
    

Because the notes are priced at par, the effective yield equals the nominal coupon, signalling that the market views the 7.625 % rate as a fair price given Cliffs’ credit profile and current spread environment. There is no discount premium or discount discount to account for, which suggests investors are comfortable with the existing covenant package and the company’s balance‑sheet strength.

Trading Implications

• Relative Value: The notes sit near the median spread for “BBB‑/BB‑” issuers. If the broader high‑yield market tightens (spreads compress to ~6.5 %), CLF’s notes would become mildly expensive relative to peers, creating a potential sell‑side pressure for existing holders.
  
• Credit‑Risk Play: Any deterioration in Cliffs’ credit metrics (e.g., weaker cash‑flow coverage or breach of the incurrence‑of‑debt cap) would trigger covenant‑breach concerns, widening spreads and offering a short‑/sell opportunity. Conversely, a stable or improving EBITDA outlook could keep spreads flat, supporting the notes’ price.
  
• Positioning: For a tactical high‑yield exposure, the CLF 7.625 % notes can be taken as a core holding if you expect the high‑yield spread curve to stay level or compress modestly. In a risk‑off environment, a quick‑sell as spreads widen could preserve capital.
  

Overall, the covenant set is fairly tight for a senior unsecured issuance, and the par‑pricing places the notes in line with benchmark yields for similar credit quality. Traders should monitor covenant‑related credit metrics and high‑yield spread dynamics for the next 6–12 months to fine‑tune entry/exit decisions.