Netflix selling $2B in junk bonds to fund new shows

Netflix is amassing more debt to fund its ambitious growth plans.

The digital streaming entertainment company said Monday that it is planning to issue approximately $2 billion in bonds to fund various corporate activities, which it said could include content acquisitions, production and development, capital expenditures and more.

Netflix said the bonds will be issued in two series and will be denominated in U.S. dollars and euros. Moody’s Investors Service has assigned the proposed issuance a “Ba3” rating, which is considered junk status. However, the ratings agency said it expects Netflix’s debt level to improve as it continues to transition from licensed shows to owned original content.

Borrowing has been Netflix’s preferred strategy for raising funds due to attractive interest rates. The company recently reported its long-term debt ballooned to $8.34 billion during the third quarter, compared to $4.89 billion a year ago.

Overall, Netflix is facing $18.6 billion in both longterm debt and shorter term obligations, according to its third-quarter SEC filings.

The new bond issuance is the latest signal that Netflix will continue to borrow as a way to fuel its heavy spending on content. The company has previously said it expects to spend $7 billion to $8 billion on content this year, though the spending now looks like it could actually reach as high as $13 billion.

As a result, Netflix continues to burn through cash. For the recent third quarter, the company announced that negative free cash flow was $859 million, compared to $465 million in the year-ago quarter.

Netflix expects negative free cash flow to widen sequentially for the fourth quarter. For the year, it expects a cash bleed of around $3 billion.

“We recognize we are making huge cash investments in content,” Netflix said in its third-quarter earnings announcement last week.

“We want to assure our investors that we have the same high confidence in the underlying economics as our cash investments in the past. These investments we see as very likely to help us to keep our revenue and operating profits growing for a very long time ahead.”

Wall Street has been largely forgiving of Netflix’s heavy borrowing so long as the company continues to log bigger subscriber growth, which is a key indicator of future revenue.