Facing a difficult economy, Steel Dynamics Inc. was forced last week to go to the markets to raise money. But when it did, the markets showed their confidence in the Fort Wayne-based steelmaker and recycler.
The company was forced to issue new stocks and convertible securities as it faced the possibility of having more debt in the third quarter than its contracts with its banks allowed.
Steel sales have been down as the recession has depressed sales of cars, washing machines and just about everything else made of the commodity.
Rapidly growing SDI reported losses in the fourth quarter of 2008 and the first quarter of 2009. The company, which employs more than 8,000, ran its mills at less than half their capacity through the first three months of 2009.
But when SDI went to the market last week with 27 million new shares of common stock, it got a big vote of confidence. Investors offered to buy three times as many, SDI Chairman and CEO Keith Busse said.
SDI also got more takers than it needed for $250 million worth of five-year bonds that can be converted into company stock if its value grows, said Fred Warner, SDI’s investor relations manager.
Altogether, SDI raised more than $600 million last week, Warner said.
“The negative is that there’s a small amount of dilution for the stockholders,” Busse said.
But by raising enough to retire $500 million in debt, SDI removed the risk it would violate its debt-to-equity covenants with its banks, Busse said.
SDI stock closed at $15.97 Wednesday on the Nasdaq stock exchange. The new stock sold at $13.50 a week earlier.
An important bellwether for the economy, steel sales aren’t improving significantly, Busse said.
SDI cut 200 jobs last month from its OmniSource Corp. scrap-metal subsidiary because of weak demand.
But Busse said the sector of the economy he’s watching most closely is construction, and that isn’t improving, either.
