AK Steel bought back notes, cut revolver borrowings in Q3, hopes for further debt reduction

By Paul Deckelman

New York, Oct. 27 – AK Steel Holding Corp. bought back $12.5 million of its senior unsecured notes during the 2015 third quarter, the company said on Tuesday, and reduced its revolving credit facility borrowings by $45 million.

And the West Chester, Ohio-based producer of flat-rolled carbon, stainless and electrical steel products, primarily for automotive, infrastructure and manufacturing, construction and electrical power generation and distribution markets, hopes to be able to further reduce its $2.386 billion of outstanding long-term debt.

“From a liquidity perspective, we believe we are in a very good position,” Roger K. Newport, the company’s executive vice president for finance and chief financial officer – and beginning Jan. 1, its next chief executive officer – said during AK’s conference call with analysts following the release of its results for the third quarter ended Sept. 30.

“We have liquidity to meet our foreseeable needs and we have no near-term debt maturities,” he said. The nearest maturity, he noted, is AK’s $380 million of outstanding 8¾% senior secured notes that will come due in 2018.

“More importantly, we continue to focus on lowering our costs and optimizing our operations to enhance cash flows so that we can further reduce our debt levels.”

The $2.386 billion of debt on the balance sheet at the quarter’s end was down sequentially from $2.442 billion at the end of the second quarter on June 30, and down as well from the $2.452 billion outstanding at the end of the 2014 fiscal year on Dec. 31.

Discount debt buy-back

During the quarter, Newport said, the company was “presented with unsolicited opportunities to repurchase certain of our outstanding debt. After careful consideration and with our solid liquidity position, we decided to take advantage of the low price,” leading to the buy-back of the $12.5 million par value of its senior unsecured notes – which took place “at a substantial discount.”

The CFO said that year to date, AK has repurchased $15 million in par value of its unsecured notes at a composite price of about 67 cents on the dollar, representing a gain of approximately $4.7 million.

He also pointed out that during the quarter, AK was able to reduce its revolver borrowings by $45 million, its second straight quarter of having reduced such borrowings. It had repaid $10 million on the revolver in the second quarter

According to its most recent quarterly 10-Q filing with the Securities and Exchange Commission following the second quarter, the company had $595 million borrowed at that time against the $1.5 billion asset-based credit facility, which it had entered into in September of 2014; the latest quarterly repayment would bring that down to $550 million.

According to the 10-Q, the company’s capital structure as of June 30 also included the $380 million of 8¾% secured notes due in 2018, as well as four other series of notes – $150 million of 5% exchangeable senior notes due 2019, with an effective rate of 10.8%, plus $529.8 million of 7 5/8% senior notes due 2020, $427.5 million of 7 5/8% senior notes due 2021 and $290.2 million of 8 3/8% senior notes due 2022, in addition to $99 million of industrial revenue bonds in various series due between 2020 and 2028.

The company ended the third quarter with total liquidity of $821 million, consisting of $73.2 million of cash and cash equivalents and $747.8 million of revolver availability. The cash position compared with $75 million at the end of the second quarter and $70.2 million at the end of 2014.

Newport said the company’s “solid” liquidity was up sequentially by $21 million “despite the challenging steel market conditions that we have faced this year.”

Leadership change coming

During his prepared remarks, James L. Wainscott, AK’s long-time chairman, chief executive officer and president, said that in order to serve its three constituent groups – employees, customers and shareholders – “it’s important that we make money, improve our cash and liquidity positions, strengthen our balance sheet and get our stock price up. We get it, and we are on it.”

Wainscott will step down from his CEO and president’s posts on Jan. 1, remaining as non-executive chairman. He will be replaced as CEO by Newport and as president by Kirk. W. Reich, currently the company’s executive vice president for manufacturing, who will also assume the title of chief operating officer.

© 2015 Prospect News.
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