Netflix raised US$1.6bn on Monday with its largest junk-bond offering to date, as the streaming powerhouse prepares to boost spending on original content to as much as US$8bn next year.
The company has been relying on the debt market to finance the heavy investment required to produce its own shows and films and reduce its dependence on licensing content from elsewhere.
The 10.5-year NCL senior note priced at 4.875%, bang in the middle of 4.75%-5% price talk.
Moody’s said that Netflix’s debt-to-earnings ratio was expected to climb to a new high of around eight times after Monday’s transaction.
But the rating agency said it expected leverage to fall back to around six times by the end of next year, as growth in earnings outpaces the growth in debt.
Analysts at CreditSights said the new notes offered a “decent concession” over Netflix’s 2026 notes, which were spotted trading at a yield of around 4.4% on Monday morning.
Morgan Stanley was lead bookrunner on the new bond, which is rated B1 by Moody’s and B+ by S&P.
The new deal follows the company’s successful debut in the European high-yield market earlier this year, when it raised €1.3bn and comes almost exactly a year after the company’s last bond sale in US dollars. nL8N1HZ4TA
Similar to that issue, the new deal includes investment grade-style restrictive covenants, according to independent research firm Covenant Review.
Netflix beat analyst expectations last week, reporting 5.3 million subscriber additions worldwide in the third quarter, well past estimates of 4.5 million. nL2N1MR23Q
Company executives signaled to investors on a conference call Monday that spending for new content will be dependent on the pace of subscriber growth, according to one investor who took part.
“They claim that if subscriber growth slows they can stop spending (on content) and monetize that,” said the investor.
“But if they don’t come out with new productions, are customers going to continue to watch ‘House of Cards’ over and over again?”