Debt Offering Boosts U.S. Steel Shares

3 May 2016

U.S. Steel shares rose 6 percent Monday after the Pittsburgh steel producer said it will sell $500 million in senior secured notes and use the cash to repay debt and for general corporate purposes.

The offering comes after analysts last week pressed CEO and president Mario Longhi about when the Pittsburgh steel producer would take advantage of the jump in steel stocks since the beginning of the year to bolster its financial footing.

Losses of $1.5 billion last year and $340 million in the first quarter of this year have made investors uneasy about U.S. Steel’s cash position in light of $450 million in senior notes that must be redeemed in June 2017. The company had $705 million in cash on hand at the end of the first quarter, down from $755 million at the end of last year and $1.35 billion at the end of 2014.

Moody’s Investor Service downgraded U.S. Steel debt Monday, citing the “significant deterioration” of the company’s performance, debt protection concerns and the expectation that the industry will continue to face challenging conditions.

During the company’s quarterly earnings call Wednesday, several analysts asked whether U.S. Steel would consider selling stock to raise cash. U.S. Steel shares have more than doubled this year and closed Monday at $20.30, up $1.19.

Mr. Longhi told them the company was prepared to strike when the time was right.

“We’re watching the markets, both the steel market and the capital markets. When we think it makes sense for us and the right opportunity is there, then we will do something,” he said.

Other steelmakers also are taking advantage of favorable market conditions. AK Steel of West Chester, Ohio, said last week it will offer 52 million shares at $4.40 per share to repay debt from its $1.5 billion revolving credit line. Investment banks underwriting the offering were given the option of selling another 7.8 million shares if there is enough demand.

U.S. Steel’s $500 million in senior secured notes will be due in 2021. The company said it will focus on repaying debt that is due in the near term and will use whatever cash remains from the offering for general corporate purposes.


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