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Russian metallurgical company Mechel OAO (MTL) announced that one of its units Mechel Trading AG has secured a credit facility from a syndicate of lenders.

The banks have granted a credit facility totaling $180 million. The facility may be increased to $350 million with assistance from other banks as well. Mechel Trading AG's facility will be used to re-finance short term loans and carries a three-year tenor with an 18-month grace period.

Mechel OAO and Chelyabinsk Metallurgical Plant OAO act as guarantors of the facility. The credit is also supported by an assignment of Mechel Trading AG's offtake contracts.

The new facility covers Mechel’s financial requirements and replaces its current short-term credit lines, while improving the maturity profile of its debt portfolio and reducing the cost of financing.

Recently, Mechel reported its second quarter 2011 earnings. The company recorded a net income of $191.9 million in the second quarter of 2011, down 37.9% from the previous quarter’s consolidated net income of $309.1 million.

Revenues in the second quarter soared 18.3% sequentially to $3.5 billion based on the company’s relentless efforts at restoring production volumes in its mining segment while preserving high capacity utilization rates in steel and other segments.

Operating income in the reported quarter climbed by 6.2% to $476.3 million versus the first quarter of 2011. Operating margin was 13.72% in the second quarter of 2011 versus 15.28% in the first quarter of 2011.

Mechel is a leading domestic steel and coal producer with a strong position in key businesses, including production of specialty steel and alloys. The company has the largest coal reserve base in Russia. It is focusing on growth and cost-cutting measures.

The company owns and controls essential infrastructure, including ports, rolling stock and power plants, which provide access to the export markets. However, Mechel’s large capital-spending program, high debt and substantial interest burden are matters of concern.

Currently, Mechel has a short-term (1 to 3 months) Zacks #3 Hold rating and a long-term (6 months) Neutral recommendation.

Mechel faces stiff competition from Arcelor Mittal (MT) and Norilsk Nickel Mining and Metallurgical Co.

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