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Item 1.01.
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Entry into a Material Definitive Agreement.
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ABL Facility
On March 13, 2020 Cliffs entered into an asset-based revolving credit facility (the “ABL Facility”) with Bank of America N.A. (“BOFA”), as administrative agent (in such capacity, “Administrative Agent”) and a lender, and various other financial institutions as lenders (the “Lenders”). The ABL Facility replaces Cliffs’ existing $450.0 million Amended and Restated Syndicated Facility Agreement, dated as of February 28, 2018, among Cliffs, the subsidiaries of Cliffs from time to time party thereto, the lenders from time to time party thereto and BOFA, as administrative agent.
The ABL Facility will mature upon the earlier of March 13, 2025 or 91 days prior to the maturity of certain other material debt of Cliffs, and provides for up to $2.0 billion in borrowings, including a $555.0 million sublimit for the issuance of letters of credit and a $125.0 million sublimit for swingline loans. Availability under the ABL Facility is limited to an eligible borrowing base determined by applying customary advance rates to eligible accounts receivable, inventory and certain mobile equipment.
The ABL Facility and certain bank products and hedge obligations are guaranteed by Cliffs and certain of its existing material wholly-owned domestic subsidiaries and are required to be guaranteed by certain of Cliffs’ future material wholly-owned domestic subsidiaries. Amounts outstanding under the ABL Facility and certain bank products and hedge obligations are secured by (i) a first-priority security interest in the accounts receivable and other rights to payment, inventory, as-extracted collateral, certain investment property, certain general intangibles and commercial tort claims, certain mobile equipment, commodities accounts, deposit accounts, securities accounts and other related assets of Cliffs and the guarantors, and proceeds and products of each of the foregoing (collectively, the “ABL Collateral”), and (ii) a second-priority security interest in substantially all of the assets of Cliffs and the other guarantors other than the ABL Collateral (collectively, the “Notes Collateral” and, together with the ABL Collateral, the “Collateral”), in each case, subject to certain customary exceptions.
Borrowings under the ABL Facility bear interest, at Cliffs’ option, at a base rate, or, if certain conditions are met, a LIBOR rate, in each case plus an applicable margin. The base rate is equal to the greater of the federal funds rate plus ½ of 1%, the LIBOR rate based on a one-month interest period plus 1%, the floating rate announced by BOFA as its “prime rate” and 1%; provided that, the LIBOR rate shall in no event be less than 0%. The LIBOR rate is a per annum fixed rate equal to LIBOR with respect to the applicable interest period and amount of LIBOR rate loan requested.
The ABL Facility contains customary representations and warranties and affirmative and negative covenants including, among others, covenants regarding the maintenance of certain financial ratios if certain conditions are triggered, covenants relating to financial reporting, covenants relating to the payment of dividends on, or purchase or redemption of, Cliffs’ capital stock, covenants relating to the incurrence or prepayment of certain debt, covenants relating to the incurrence of liens or encumbrances, compliance with laws, transactions with affiliates, mergers and sales of all or substantially all of Cliffs’ assets and limitations on changes in the nature of Cliffs’ business.
The ABL Facility provides for customary events of default, including, among other things, the event of nonpayment of principal, interest, fees, or other amounts, a representation or warranty proving to have been materially incorrect when made, failure to perform or observe certain covenants within a specified period of time, a cross-default to certain material indebtedness, the bankruptcy or insolvency of Cliffs and certain of its subsidiaries, monetary judgment defaults of a specified amount, invalidity of any loan documentation, a change of control of Cliffs, and defaults under the Employee Retirement Income Security Act of 1974 (ERISA) resulting in liability of a specified amount. In the event of a default by Cliffs (beyond any applicable grace or cure period, if any), the Administrative Agent may and, at the direction of the requisite number of Lenders, shall declare all amounts owing under the ABL Facility immediately due and payable, terminate such Lenders’ commitments to make loans under the ABL Facility and/or exercise any and all remedies and other rights under the ABL Facility. For certain defaults related to insolvency and receivership, the commitments of the Lenders will be automatically terminated and all outstanding loans and other amounts will become immediately due and payable.
Secured Notes Indenture
On March 13, 2020, Cliffs entered into an indenture (the “Secured Notes Indenture”) among Cliffs, the guarantors party thereto (the “Guarantors”) and U.S. Bank National Association, as trustee and first lien notes collateral agent (the “Trustee”), relating to the issuance by Cliffs of $725 million aggregate principal amount of 6.75% Senior Secured Notes due 2026 (the “Secured Notes”). The Secured Notes were sold in a private transaction exempt from the registration requirements of the Securities Act. The Secured Notes have not been, and will not be, registered under the Securities Act and may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act.
The Secured Notes bear interest at a rate of 6.75% per annum. Interest on the Secured Notes is payable semi-annually in arrears on March 15 and September 15 of each year, commencing on September 15, 2020. The Secured Notes mature on March 15, 2026 and are secured senior obligations of Cliffs.
The Secured Notes are jointly and severally and fully and unconditionally guaranteed on a senior secured basis by all of Cliffs’ material domestic subsidiaries (other than excluded subsidiaries) and will be secured (subject in each case to certain exceptions and permitted liens) by (i) a first-priority lien (pari passu with Cliffs’ existing secured notes) on the Notes Collateral and (ii) a second-priority lien (junior to the ABL Facility) on the ABL Collateral.
The terms of the Secured Notes are governed by the Secured Notes Indenture. The Secured Notes Indenture contains customary covenants that, among other things, limit Cliffs’ and its subsidiaries’ ability to create certain liens on property that secure indebtedness, use proceeds of dispositions of collateral, enter into sale and leaseback
transactions, merge or consolidate with another company, and transfer or sell all or substantially all of Cliffs’ assets. Upon the occurrence of a “change of control triggering event,” as defined in the Secured Notes Indenture, Cliffs is required to offer to repurchase the Secured Notes at 101% of the aggregate principal amount thereof, plus any accrued and unpaid interest, if any, to, but excluding, the repurchase date.
Cliffs may redeem any of the Secured Notes beginning on March 15, 2022. The initial redemption price is 105.063% of their principal amount, plus accrued and unpaid interest, if any, to, but excluding, the redemption date. The redemption price will decline each year after March 15, 2022 and will be 100% of their principal amount, plus accrued interest, beginning on March 15, 2025. Cliffs may also redeem some or all of the Secured Notes at any time and from time to time prior to March 15, 2022 at a price equal to 100% of the principal amount thereof plus a “make-whole” premium, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.
In addition, at any time and from time to time on or prior to March 15, 2022, Cliffs may redeem in the aggregate up to 35% of the original aggregate principal amount of the Secured Notes (calculated after giving effect to any issuance of additional Secured Notes) with the net cash proceeds of certain equity offerings, at a redemption price of 106.750%, plus accrued and unpaid interest, if any, to, but excluding, the redemption date, so long as at least 65% of the original aggregate principal amount of the Secured Notes (calculated after giving effect to any issuance of additional Secured Notes) issued under the Secured Notes Indenture remain outstanding after each such redemption.
The Secured Notes Indenture contains customary events of default, including failure to make required payments, failure to comply with certain agreements or covenants, failure to pay or acceleration of certain other indebtedness, certain events of bankruptcy and insolvency, and failure to pay certain judgments. An event of default under the Secured Notes Indenture will allow either the Trustee or the holders of at least 25% in aggregate principal amount of the then-outstanding Secured Notes to accelerate, or in certain cases, will automatically cause the acceleration of, the amounts due under the Secured Notes.