AK Steel down as it seeks to raise cash

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AK Steel shares fell to their lowest level in nine years in heavy trading Thursday as the troubled steelmaker battened down the hatches with a stock and debt offering that will provide more than $500 million in cash to weather a tough market.

Shares of the West Chester, Ohio, steel producer fell nearly 9.73 percent, closing at $3.63, down 39 cents. More than 51 million shares -- nearly half of the shares outstanding -- were traded.

A week ago, AK shares were priced at $5.41. Since Monday, the steel producer has forecast a fourth quarter loss of 67 cents to 72 cents per share and sold $588 million in stock and debt. The offering included 22 million new shares priced late Wednesday at $4 per share. The cash from the offering was about 1.5 times the market value of AK Steel shares before the offering.

AK Steel has a plant in Butler, where about 1,250 union workers are covered by a four-year labor agreement that took effect Oct. 1.

The steelmaker said proceeds from the offering will be used to pay down a revolving credit line and for general corporate purposes. Analysts said since the steel producer can still borrow more than $500 million on the line, it could use the cash for other items. They said the offering was a defensive maneuver, allowing the company to raise cash now rather than wait until its condition or the steel market worsened and credit terms became more onerous.

"This is a company that really hasn't generated any cash flow over the last four years," said Morningstar analyst Bridget Freas.

Ms. Freas said AK Steel has about $420 million in pension fund contributions and $200 million in capital expenditures facing it over the next two years. She expects the company will generate a small profit next year, citing higher prices and lower raw materials costs.

Standard & Poor's downgraded AK Steel's debt this week, citing sagging demand, the industry's excess capacity, volatile prices and AK Steel's debt burden.

AK Steel and other sheet steel producers have raised prices in recent weeks, but some analysts are skeptical about whether the increases will stick. "Recent flat rolled prices will likely be unsustainable unless demand improves meaningfully or import pressure abates," Jefferies analyst Luke Folta told investors in a note Thursday.

In a note to investors Tuesday, Morningstar's credit analysts said they do not believe AK Steel's liquidity situation will worsen significantly over the next two years and they do not expect the company to violate provisions of its credit agreements, something that could restrict how much it could borrow from the credit line.

AK Steel shares are off 51 percent this year.

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Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.


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