Cleveland-Cliffs' Debt Strategy: Balancing Flexibility and Capital Intensity in a High-Leverage Environment

Cleveland-Cliffs Inc. (NYSE: CLF) has taken a pivotal step in reshaping its capital structure by issuing $850 million in 7.625% Senior Guaranteed Notes due 2034, a move aimed at refinancing $685 million in 2027 maturities and repaying borrowings under its asset-based credit facility Cleveland-Cliffs Announces Upsizing and Pricing of $850 Million of Senior Unsecured Notes due 2034^[1]. This strategic maneuver, while extending the company's debt horizon and reducing near-term refinancing pressures, raises critical questions about its long-term financial flexibility and capital intensity.

Refinancing as a Tactical Win

The 2034 note issuance effectively shifts a significant portion of Cleveland-Cliffs' debt burden from 2027 to 2034, providing the company with a seven-year reprieve from large-scale refinancing Cleveland-Cliffs Issues $850M Senior Notes at 7.625%, Extends ...^[2]. This extension is particularly valuable in a volatile steel market, where cash flow predictability is paramount. By redeeming higher-yielding 2027 notes (ranging from 5.875% to 7.00%), the company also locks in a lower interest rate environment, albeit at a cost. The new 7.625% rate, while higher than the retired debt's average, reflects current market conditions for a company with Cleveland-Cliffs' credit profile Cleveland-Cliffs (CLF) Issues US$850M in Notes Amid Debt ...^[3].

However, the trade-off is clear: the company's average cost of capital has increased, and its leverage metrics remain under pressure. As of June 30, 2025, Cleveland-Cliffs reported $7.727 billion in long-term debt, with a liquidity buffer of $2.7 billion Cleveland-Cliffs Reports Second-Quarter 2025 Results^[4]. While this liquidity provides short-term flexibility, the Debt-to-EBITDA ratio of -25.42 (calculated using an annualized EBITDA of -$304 million) underscores the company's precarious position Cleveland-Cliffs Debt-to-EBITDA^[5]. A negative EBITDA, driven by a GAAP net loss of $470 million in Q2 2025, highlights the fragility of its earnings base Cleveland-Cliffs Reports Second-Quarter 2025 Results^[6].

Capital Intensity and Leverage Risks

The refinancing effort, while tactically sound, does little to address Cleveland-Cliffs' structural challenges. The company's interest coverage ratio of -2.55 indicates that its earnings are insufficient to cover even basic interest obligations These 4 Measures Indicate That Cleveland-Cliffs (NYSE:CLF) Is ...^[7]. This is exacerbated by a 83% year-over-year decline in EBIT, reflecting broader industry headwinds and operational inefficiencies Cleveland-Cliffs Earnings Q2 2025 | Cleveland-Cliffs ...^[8]. Analysts at Sahm Capital note that the 2034 issuance "heightens sensitivity to interest rates and cash flow," particularly as the company navigates U.S. steel tariff uncertainties Does Cleveland-Cliffs' $850 Million Debt Refinance Signal a ...^[9].

Moreover, the decision to issue unsecured senior notes-ranking equally with future unsecured debt-signals a reliance on debt markets that could become more constrained if credit conditions tighten Cleveland-Cliffs Issues $850 million in senior notes due 2034 at ...^[10]. While the company's leverage target of Net Debt/TTM Adjusted EBITDA of 2.5x remains aspirational, its current trajectory suggests a widening gap between ambition and reality Cleveland-Cliffs Q2 2025 slides: Returns to positive EBITDA amid steel tariff benefits^[11].

Strategic Implications and Market Outlook

Cleveland-Cliffs' debt strategy appears to prioritize short-term stability over long-term optimization. The extension of maturities buys time to execute cost-reduction initiatives, such as the $50-per-ton steel unit cost cuts projected for 2025 Cleveland-Cliffs (CLF) Q2 2025 Earnings Transcript^[12]. However, these savings must materialize swiftly to offset the rising interest burden. Projections of 6.8% annual revenue growth through 2028 hinge on the company's ability to maintain pricing power amid global steel overcapacity and shifting trade policies Cleveland-Cliffs (CLF) Issues US$850M in Notes Amid Debt ...^[13].

For investors, the key question is whether Cleveland-Cliffs can transform its operational improvements into sustainable profitability. The recent refinancing is a necessary step to avoid immediate distress but does not resolve the underlying capital intensity of its business model. As SimplyWall St. observes, "the move stabilizes the balance sheet but heightens exposure to interest rate volatility" Does Cleveland-Cliffs' $850 Million Debt Refinance Signal a Strategic Shift in Capital Structure for CLF?^[14].

Conclusion

Cleveland-Cliffs' 2034 note issuance is a double-edged sword. It extends financial flexibility in the near term but deepens the company's reliance on high-cost debt and exposes it to cash flow risks. While the Q2 2025 EBITDA improvement to $97 million is encouraging, it remains a narrow base for deleveraging in a capital-intensive industry. For now, the strategy appears to buy time rather than build resilience-a critical distinction for investors weighing the company's long-term viability.