Cliffs Natural Resources investors face more bad news: A class action lawsuit – by John Funk (Cleveland Plain Dealer – March 16, 2016)

CLEVELAND, Ohio — Investors who still own stock in Cleveland-based Cliffs Natural Resources face another round of bad news.

Their stock lost more than 12 percent of value Tuesday, closing at just $2.38 a share on the New York Stock Exchange, after two investors who previously bought unsecured bonds in the company filed a class action lawsuit.

The complaint, filed in a federal court in New York, alleges that Cliffs, still the nation’s larges iron ore mining company, gave big institutional bondholders and banks an opportunity to exchange their unsecured Cliffs notes for new unconditionally guaranteed notes that pay an 8 percent rate of interest and come due in 2020.

The deal “created two classes of holders of Class Notes with very unequal rights,” the suit alleges, adding that individual bondholders “were kept in the dark regarding the …[ details of the company’s] exchange offer.”

What this means, says the suit, is that holders of the new notes would come first if the company had to choose whom to pay, for example in a bankruptcy proceeding.

The exchange of the old notes for the new bonds has “impaired the Class members’ [those holding the old notes] right to received payment of the principal and interest … and the right to institute suit to compel such payment,” the suit argues.

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