Tuesday, 17 July 2018

Netflix bonds up on strong quarter

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Bonds of streaming powerhouse Netflix rose Tuesday after the company reported stronger-than-expected subscriber growth in the second quarter.

The company’s 3.625% 2027 euro-denominated notes traded up nearly a point to a bid price of 102.20, according to Thomson Reuters data.

Its US dollar-denominated bonds were barely changed in early trade, but the company’s share were expected to open at a record high. 

In an earnings interview after the close on Monday CEO Reed Hastings said the company has room to raise additional debt to finance the production of original content even though it will continue to burn cash to fund investments.

“Our debt-to-market cap is incredibly low and conservative, so we’ve got lots of room there,” Hastings said during the interview. “In some senses, negative free cashflow will be an indicator of enormous success.”

According to analysts at CreditSights, Netflix (B1/B+) will not be able to generate positive cashflow for at least another couple of years.

In a letter to shareholders released on Monday, the company said it sees debt financing as the most efficient way to finance its capital needs and that it was pleased to broaden its investor base beyond the US high-yield market.

It priced its debut euro high-yield bond in April, a €1.3bn 10-year offering. It last tapped the US dollar market in October 2016 with a US$1bn 10-year bond.

That issuance - a natural hedge for the company’s European operations - attracted more than €5bn in demand from over 300 investors, IFR reported at the time. 

The success of shows such as “13 Reasons Why” and the latest season of “House of Cards” helped drive subscriber growth well above the company’s own expectations over the past quarter.

Streaming subscribers globally now top 100 million for the first time ever. 


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