Netflix Snags Lowest Junk Bond Yields in Binge-Watching Frenzy

(Bloomberg) -- Netflix Inc. pulled in record subscribers after people hunkered down at home amid the virus pandemic. It’s also pulled in record-low yields for its bonds.

Investors clamored for Netflix’s latest $1 billion offering of dollar-denominated and euro bonds, after the streaming service emerged as a beneficiary of the unprecedented health crisis keeping people at home.

Demand was so strong, with orders at about ten times the offering size, that Netflix was able to reduce yields on both portions on Thursday from earlier discussions, according to people familiar with the matter. It sold $500 million of bonds at a 3.625% yield, among the lowest ever seen in the U.S. high-yield bond market and in line with prices typically offered on investment-grade bonds. The 470 million euro ($507 million) portion priced at 3%.

As the virus cripples businesses globally, investors are craving debt from companies in better shape to ride out the Covid-19 environment. Netflix added a record 15.8 million subscribers in the three months ended March 31 and posted its first quarter of positive free cash flow since 2014 as it benefited from a larger captive audience.

War Chest

Still, Netflix remains a few years away from achieving sustained positive free cash flow, so it makes sense to build up a war chest especially at such cheap rates, according to Bloomberg Intelligence analyst Stephen Flynn.

“Given the outlook for many high-yield issuers is so uncertain in response to the pandemic, Netflix may offer a much higher level of certainty in future performance given its business model,” he said. The model “is well-situated for a social-distanced environment,” according to Flynn.

The kinds of low yields Netflix are paying were last seen before the virus sparked the biggest sell-off since the financial crisis. Technology firm PTC Inc. priced a $500 million five-year bond at 3.625% in January, while VICI Properties Inc. got a $750 million deal at 3.5% that month.

Representatives for Morgan Stanley, which led the bond sale, declined to comment and a representative for Netflix didn’t immediately respond to a request for comment.

Netflix intends to use the net proceeds for general corporate purposes, which may include content acquisitions and for production and development.

©2020 Bloomberg L.P.