Netflix just went deeper into hock: The company announced the pricing of unsecured bonds in a transaction raising around $2.2 billion, giving it more cash to invest in content, real estate and infrastructure. The streamer had said Tuesday that it planned to raise $2 billion through a new debt offering, bringing its long-term debt to more than $12 billion.
On Wednesday, Netflix announced that the total bond offering would be worth about $2.24 billion. That includes €1.2 billion ($1.34 billion) in 3.875% senior notes due 2029 and $900 million of its 5.375% senior notes due 2029. The company said it expects to close the sale on April 29, 2019.
Netflix, in its boilerplate text announcing the bond sale said, said it plans to use the cash for general “corporate purposes, which may include content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.”
The bond offering marks the seventh time in four years that Netflix is raising $1 billion or more through debt. With that latest debt deal, its long-term debt will climb to around $12.5 billion.
Moody’s Investor Service assigned a “Ba3” junk-bond rating to the Netflix new debt offering, indicating a non-investment grade “speculative” security. The firm maintained a “stable” outlook on the company, “which reflects our expectation that Netflix’s operating results will improve gradually and the company will de-lever through revenue, EBITDA and margin growth,” Moody’s said in announcing the rating Monday.
“Pro forma for this debt issuance, Netflix’s gross leverage will be 7.5x (including Moody’s adjustments) for the last twelve months ended March 31, 2019,” the firm said in the rating assignment. However, it expects Netflix’s gross leverage will fall to below 5.5x by the end of 2019 and below 5.0x by the end of 2020.
Moody’s projected that the company has the ability to reach cash-flow breakeven by 2023, as it increases total margins to the low- to mid-20% range. “We believe the company’s strategy to procure its own content has positive long-term implications as it builds its owned library assets as compared to pure licensing of content which has supply considerations,” the firm said.
