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Netflix Sells $2.2 Billion of Junk Bonds to Fund More Content

Molly Smith and Elizabeth Rembert
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Netflix Sells $2.2 Billion of Junk Bonds to Fund More Content

(Bloomberg) -- Netflix Inc. sold around $2.2 billion of bonds in the U.S. and Europe as it continues to bolster its original content in the face of expanding competition.

Investors bought $1 billion of dollar-denominated bonds and 1.1 billion of euro bonds ($1.2 billion) from the TV streaming company, data compiled by Bloomberg show. Netflix had said Monday it would sell about $2 billion of debt with the proceeds being used for general corporate purposes, including content purchases and production as well as potential acquisitions, according to a statement.

The dollar-denominated 10.5-year bonds, which can’t be bought back, will yield 4.875%, down from around 5.125%, according to a person with knowledge of the price talk. The euro notes, which have the same maturity, will pay 3.625%, after initially discussing around 3.875%, the person said, asking not to be identified as the details are private.

Netflix issued 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.

Netflix has become one of the largest issuers in the U.S. junk-bond market. Its dollar bonds may have a market value in the $10 billion to $10.5 billion area, placing Netflix as the 11th largest borrower in the benchmark Bloomberg Barclays U.S. Corporate High Yield Bond Index, according to Bloomberg Intelligence.

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

The company last borrowed $2.24 billion of junk bonds in April, and said that it would reduce its reliance on debt financing at the time. CEO Hastings walked back that language in a July letter to shareholders, saying Netflix planned to still use the high-yield market to fund content investments.

Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Wells Fargo & Co. managed the bond sale, the data show.

--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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