Net­flix sell­ing $2b of junk bonds to fund new shows

The Myanmar Times - Weekend - - International Business - OC­TO­BER 26, 2018

NET­FLIX is once again turn­ing to the junk-bond mar­ket to fund new pro­gram­ming as the stream­ingvideo gi­ant seeks to main­tain its tor­rid sub­scriber growth.

The $2 bil­lion bond of­fer­ing, which will be is­sued in dol­lars and eu­ros, comes just a week af­ter the com­pany re­ported a big­ger jump in sub­scribers than Wall Street an­a­lysts ex­pected. The bonds would push the cash-burn­ing com­pany’s debt load above $10 bil­lion for the first time. Net­flix’s mar­ket value has soared al­most 70 per­cent this year to about $140 bil­lion.

In­vestors ex­pect the U.S. por­tion of the 10.5-year bond to yield about 6.375 per­cent, while the euro notes may pay around 4.625 per­cent, ac­cord­ing to peo­ple fa­mil­iar with the mat­ter. Net­flix paid less than 6 per­cent when it last tapped the mar­ket in April, in part be­cause un­der­ly­ing Trea­sury yields were lower.

“To me it feels a bit like a win­win sit­u­a­tion,” said John Mcclain, a high-yield money man­ager at Di­a­mond Hill Cap­i­tal, which over­sees $22.6 bil­lion in­clud­ing Net­flix debt. “You’re buy­ing the high­estqual­ity, high-yield busi­ness at yields that are fairly close to the over­all mar­ket. It’s low-cost fund­ing for them, es­pe­cially rel­a­tive to the cost of is­su­ing new eq­uity.”

Net­flix said in a state­ment that it will use proceeds from the of­fer­ing to con­tinue to ac­quire and fund new con­tent. The com­pany said last week that it expects to burn about $3 bil­lion in cash this year as it con­tin­ues to pri­or­i­tize orig­i­nal series and movies. Mor­gan Stan­ley, Gold­man Sachs, Jpmor­gan, Deutsche Bank and Wells Fargo are man­ag­ing the sale, ac­cord­ing to a per­son fa­mil­iar with the mat­ter who asked not to be named be­cause the deal is pri­vate.

Im­pres­sive sub­scriber growth and rev­enues have given the Net­flix lee­way to con­tinue to spend mas­sive amounts of money to fund its pro­gram­ming. Last week, S&P Global Rat­ings up­graded the com­pany’s credit by one level to BB- and raised its out­look to sta­ble from pos­i­tive. Moody’s In­vestors Ser­vice raised its rat­ing in April, when the com­pany last is­sued bonds.

The com­pany’s an­nounce­ment comes a few days af­ter Uber Tech­nolo­gies Inc. raised bil­lions of dol­lars of cash by tap­ping the high­yield bond mar­ket in a pri­vate place­ment. De­mand for the debt has been spurred by the worst sup­ply shortage since 2008, ac­cord­ing to Jpmor­gan an­a­lysts, and the higher de­mand kept a lid on rel­a­tive bor­row­ing costs even as the Fed­eral Re­serve hikes in­ter­est rates. – Bloomberg

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