STLD: Steel Dynamics Grows Using Other People’s Money
Steel Dynamics (STLD - Annual Report), which is a member of our Mid Cap Watch List (Track at Marketocracy) and Large Cap Watch List (Track at Marketocracy), is one of the top producers of carbon steel products in the U.S. via its mini-mills. Like many others, Steel Dynamics decided to take advantage of the fairly low interest rates currently available to refinance some of its debt:
Steel Dynamics, Inc. announced today that it has consummated an unsecured note offering of $500 million of 6¾% Senior Notes due 2015 (the “Notes”). The net proceeds from the Notes will be used to redeem the company’s existing $300 million 9½% Senior Unsecured Notes due 2009, to repay amounts outstanding under its senior secured revolving credit facility, to finance certain capital expenditures and for general corporate purposes.
So let’s see: It now has $500 million of debt-financed capital for which it must pay $33.75 million in annual interest expense, compared to the $300 million it used to have, on which it spent $28.5 million. The effective interest rate on the incremental $200 million is a mere 2.6%. Sounds like a good deal to us.
Furthermore, the company is not letting the money sit around. It immediately issued a second announcement:
Steel Dynamics, Inc. today announced it has reached an agreement to purchase two privately owned metals recycling facilities in eastern Tennessee. The facilities are Elizabethton Iron & Metal in Elizabethton, Tennessee, and Johnson City Iron & Metal, in Johnson City, Tennessee. Together, the two scrap yards typically process in excess of 225,000 tons of ferrous scrap per year.
The 225,000 tons adds nearly 5% to Steel Dynamics’ current capacity of 4.7 million tons.
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