Investing.com -- S&P Global Ratings has revised the outlook for steel producer Cleveland-Cliffs (NYSE: CLF ) Inc. to negative due to weaker earnings and cash flows. The ’BB-’ issuer credit rating was affirmed, despite the erosion of the company’s credit cushion over the past four quarters. This erosion is attributed to higher debt levels following the Stelco (TSX: STLC ) acquisition and weak earnings due to poor pricing, demand, and underperformance in noncore businesses.
The agency anticipates that Cliffs’ leverage could remain high in the 8x-10x range in fiscal 2025, before strengthening to around 4x in 2026. By this time, the company is expected to fully benefit from cost savings from restructured operations and improved earnings from contract resets. The negative outlook reflects the risks of prolonged weakness in earnings and cash flows, which could slow the company’s ability to reduce debt and restore its credit metrics.
In the first half of 2025, Cliffs is projected to continue generating weaker earnings and cash flows as it streamlines operations to improve profitability. The company’s adjusted EBITDA for fiscal 2025 is expected to be between $800 million and $1 billion, which is favorable compared to $415 million in fiscal 2024 but about 57% below that of fiscal 2023. The second quarter of 2025 is expected to continue to see weakness in earnings before a projected recovery in the latter half of the year.
The company has taken steps to return to profitability, including idling some assets, considering the sale of others, exiting unprofitable noncore businesses, and rationalizing the workforce. Cliffs also plans to restart the previously idled C6 blast furnace in the second quarter of 2026 to meet improving automotive steel demand. The company recently signed new multiyear contracts with some automotive manufacturers, winning back some of the business it lost last year to competition, albeit at lower prices than previous contracts. Cliffs expects these actions will generate about $550 million-$800 million of EBITDA annually, starting in the second half of 2025.
As of March 31, 2025, Cliffs’ adjusted debt nearly doubled to approximately $9 billion compared to the same period in 2024. This increase followed significant use of debt to fund the Stelco acquisition and drawings on its asset-based lending (ABL) facility to fund working capital and operations amid weak market conditions. Based on the projected adjusted EBITDA of $800 million-$1 billion in 2025, Cliffs’ cash flow generation may continue to be challenged due to high interest expense and sustaining capital expenditures.
S&P Global Ratings projects adjusted debt of $8 billion-$9 billion, resulting in leverage of at least 8x in fiscal 2025. Leverage could strengthen to around 4x or below in fiscal 2026 based on improved EBITDA generation as the company receives a full-year benefit of cost savings from its streamlined operations.
As of March 31, 2025, Cliffs had cash of about $57 million on its balance sheet and about $2.9 billion available under its $4.75 billion ABL facility. The company has no maturing debt until 2027, when about $685 million of senior secured debt will become due.
S&P Global Ratings could lower the ratings on Cliffs over the next 12 months if the recovery in its earnings and cash flows is weaker than projected. The outlook on Cliffs could be revised to stable if its earnings and cash flows recover, leading to stronger credit metrics. This would require adjusted debt to EBITDA below 4x, positive free cash flow generation, and a demonstration of management’s commitment to debt reduction.
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