Cleveland Cliffs Bonds Maturing In 2040 Offer 7.7% Yield To Maturity

Cliffs Natural Resources (CLF) reported first quarter earnings that missed expectations a couple of weeks ago. Despite what appeared to be disappointing numbers, management made upward revisions to full year guidance. Earlier in April, I wrote about the fixed income opportunity related to investing in Cliff's 2025 maturing bonds. With the possibility of the company raising the cash necessary to reduce debt, fixed income investors may want to look long term at the company's 2040 maturing bonds. Priced at 85 cents on the dollar, and a 6.25% coupon rate, the 2040 bonds are yielding 7.7% to maturity.

Source: FINRA
Cliff's disappointing first quarter numbers were centered around lower revenues. The company posted revenue of almost half of what was reported in the same quarter a year ago. Along with the lower revenues, the company's gross profit sank to slightly negative, roughly $100 million less than a year ago. Operating income differences were even lower by $120 million.

Source: SEC 10-Q
While an examination of the profit and loss statement may cause investors to turn away, a look at the balance sheet can provide some explanation. Cliff's burned cash in the first quarter and nearly doubled its inventory. Since the company had a large cash balance entering the quarter, they did not need to borrow additional funds and debt remained unchanged.

Source: SEC 10-Q
Cliff's cash flow statement can provide better insight into... Read more

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