Netflix is selling $2B of junk bonds to fund new shows
Netflix is once again turning to the junk-bond market to fund new programming as the streaming-video 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 cashburning 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 10.5year 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 win-win situation,” said John McClain, a highyield money manager at Diamond Hill Capital, which oversees $22.6 billion including Netflix debt. “You’re buying the highest-quality, 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 BBand 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 high-yield 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.