U.S.-based iron ore producer Cliffs Natural Resources Inc. has completed a debt exchange offer in which $512 million in debt principal consisting of second-lien notes and various senior unsecured notes was exchanged for $219 million in new 8.00% 1.5-lien senior secured notes due 2020. In our opinion, the company's capital structure was unsustainable; therefore we consider this transaction as a distressed exchange, which we view as tantamount to a default. We are lowering our corporate credit rating on Cliffs to 'SD' from 'CC'. We are also lowering the issue-level ratings on the associated debt (the second-lien notes and senior unsecured notes) to 'D' from 'CC'. The ratings on the first-lien notes remain unchanged at 'BB-' with a '1' recovery rating.
