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Lighter is Better

29 September 2020 by jbchevrel

ArcelorMittal S.A. (MTNA) owns and operates steel manufacturing and mining facilities. They produce flat steel, long and tubular products. MTNA agreed to sell the bulk of its US steelmaking assets to Cleveland-Cliffs (CLF – part of CDX HY) for $1.4b. MTNA will receive $500m in cash and the rest in CLF stock. In terms of timing, that enables MTNA to capitalize on the steep rebound in hot rolled coil since Q2, and sell at a good valuation. That asset sale was perceived positively for credit as it can be seen as reducing Net Debt. COVID to date, MTNA raised $2b fresh capital. It is not clear whether this $1.4b in fresh cash is directly a positive for MTNA credit though, because nearly all of it will be spent on share buybacks, apparently. “This transaction is a unique opportunity for ArcelorMittal to unlock significant value for shareholders while retaining exposure to the North American economy through our high-quality Nafta assets alongside a participation in what will be a stronger, better integrated, US business” CEO said. Yesterday the CDS went tighter -20bp and reverted towards -15bp on the day. Today it has tightened another -9bp. Other European metal/mining companies tightened over the past 2 sessions (Glencore -11bp Anglo -8bp), boiled by broad-based risk-on sentiment that has been holding since last Friday’s US cash open.