Netflix Borrowing $2 Billion as War for Content Heats Up
Netflix offering around $2 billion of bonds between dollars and euros.
(Bloomberg) -- Netflix Inc. is selling bonds as it continues to bolster its original content in the face of expanding competition.
The company is offering around $2 billion of bonds between dollars and euros, according to a statement Monday. The proceeds of the sale will be used for general corporate purposes, which may include content acquisitions, production and development and potential acquisitions.
The dollar-denominated 10.5-year bonds, which can’t be bought back, may yield around 5.125%, while the euro notes could pay in the high 3% range, according to people with knowledge of the matter, who asked not to be identified as the details are private. Given Netflix’s current trading levels, it could realize a blended coupon rate of less than 4.25%, according to Bloomberg Intelligence analyst Stephen Flynn.
Netflix is issuing debt after reporting earnings that beat analyst estimates and saw overseas growth that helped sooth investors’ concerns about a slowdown at home. The company burned through $551 million of cash in the third quarter and is “slowly” moving toward becoming free cash flow positive, Chief Executive Officer Reed Hastings said in a letter to shareholders last week. In the meantime, Netflix will continue to tap the high-yield market for its investment needs, he said.
The Los Gatos, California-based company reiterated expectations to burn through $3.5 billion in cash this year as the war for content heats up. It’s been raising prices -- often at the expense of subscriber gains -- in some of its largest territories, trying to shift toward profitability as streaming service competition mounts from companies such as Walt Disney Co., AT&T Inc. and Apple Inc.
Netflix has historically relied on the high-yield bond market to finance its growth, typically issuing debt following its first- and third-quarter earnings in April and October, respectively. Its debt load, including operating lease liabilities, has steadily grown to around $13.5 billion since first tapping the market in 2009, according to data compiled by Bloomberg.
What Bloomberg Intelligence Says
“Netflix may issue new junk bonds for several more years as proceeds from debt sales fuel not only free-cash-flow deficits, but also repayment of bond principal. While Netflix may not produce free cash flow until 2023, it must address a $500 million bond principal in 2021 and another $700 million in early 2022.”
--Stephen Flynn, corporate credit analyst
Click here to view the research report
Netflix’s bonds were little changed in New York trading on Monday. The stock closed 1% higher at $278.05.
Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Wells Fargo & Co. are managing the bond sale, according to a separate person with knowledge of the matter. The notes are expected to price Tuesday, the person said, asking not to be identified as the details are private.
--With assistance from Rizal Tupaz, Laura Benitez and Gowri Gurumurthy.
To contact the reporters on this story: Molly Smith in New York at msmith604@bloomberg.net;Elizabeth Rembert in New York at erembert@bloomberg.net
To contact the editor responsible for this story: Nikolaj Gammeltoft at ngammeltoft@bloomberg.net
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