Page 25 - Forbes - Asia (October 2019)

Stickler’s wife
Rebecca Li
Big River is hands down the
most technologically advanced
and fastest-growing steel
producer in North America.
“There was somewhat of a revolution under way,” says
Stickler, noting how U.S. makers were rapidly losing global
market share. After getting incentives and funding from
Arkansas and local municipalities, Stickler chose Osceola,
a small town about 80km north of Memphis, downriver
from massive scrap metal yards in cities like Chicago,
adjacent to Burlington Northern rail lines and close to major
trucking routes. Entergy offered it rock-bottom power rates
through 2026.
However, 13 months into the construction of the mill, in
August 2015, Big River CEO Correnti died in his sleep while
in Chicago attending a Navistar board meeting. “My plan was
not to be CEO of Big River Steel,” says Stickler. “John passed
away on a Tuesday. By Friday of that week, we had complete-
ly reorganized.”
One of Correnti’s strategies that Stickler boasts about is
Big River’s Wall Street-style bonuses. The majority of mill
TIM PANNELL FOR FORBES workers have production bonus targets amounting to 150%
of their wages, so a technician earning a base of $18 per hour
is expected to take home at least $45 an hour. “We’ve had
weeks where people are getting paid a bonus of 180%, 200%
or even 210%,” says Stickler.
Muni-Bond Madness
MUNICIPAL BOND
While U.S. muni-bond defaults ISSUANCE ($BIL)
have been modest—outside of
Puerto Rico’s spectacular $72 bil- $400 $428 $410
lion failure in 2015—tax-exempt $377
bond issuance has dropped $300 $318
significantly since 2017. This has
bond managers competing for $200
limited inventory. “Anything that
has any yield gets jumped on like $100 $166
a young gazelle facing hungry
lions,” says muni expert Barnet
Sherman, director of investments 2015 2016 2017 2018 2019 1
at Neighborly. “As usual in these
environments, credit gets thrown 1 Through June
out the window.” Source: Bloomberg
Another differentiator at Big River is its LEED (Leadership
in Energy and Environmental Design) certification. “Typi-
cally it’s for university and government buildings,” says Stick-
ler. “A lot of people thought we were nuts to try and qualify
for it.” Stickler believes it will make the difference whether it
is selling to Chrysler, Volkswagen or Walmart. “People won’t
pay more for our steel because it’s produced in a LEED-cer-
tified facility, but everything else being equal: price, service,
quality, etc., we get the order,” says Stickler.
Last year, thanks to a strong backdraft created by Trump’s
25% steel tariffs and fear of shortages, prices hit a ten-year
high, allowing Big River to book revenues of $1.4 billion. “I’m
not okay with tariffs,” retorts Stickler. “Trump has given the
domestic steel industry an opportunity to get itself on the
right path. But we don’t need tariffs to survive and thrive.”
If there is one big question mark surrounding Big River’s
future, it may be its ability to thrive under its $1.5 billion debt
load. In May, the steel startup got the Arkansas Development
Finance Authority to lend its name to $487 million in 30-year
junk municipal bonds to finance expansion. According to
Moody’s, the bonds will boost the company’s leverage ratio to a
risky 6.8 times and drop its interest coverage ratio to one or less.
A ramp-up in global production has created a glut in flat-
rolled steel, and prices have fallen by 25% in 2019. But Stickler
seems unconcerned. He’s gearing up for another $500 million
debt/equity financing that will enable Big River to manufac-
ture the specialized steel that goes into hybrid and electric
cars. The dealmaker in him knows that he will likely be able to
flip Big River—at big profit—long before its debts come due.
Last summer in fact, Nucor reportedly offered as much as
$3 billion for Big River, but Stickler rejected the deal. Thanks
to assistance from his wife, Big River has been hosting tours
for dozens of visiting company executives from around the
world. “We don’t hide behind patents and IP,” boasts Stickler.
chairman, from the second-largest steelmaker in the world,
One notable group was a team of executives, including its
China’s state-owned Shanghai Bao Steel, which produces
about 41 billion kilograms a year. A beaming Li says, “They
told David he was the Steven Jobs of steel.” F
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