Netflix looks to raise US$1bn despite delays in content spending
Streaming service Netflix announced a new US$1bn equivalent high-yield bond offering in dollars and euros on Wednesday, after reporting global lockdown measures mean it will burn less cash than expected in 2020.
The company had US$5.2bn of cash sitting on its balance sheet at the end of the first quarter, but remains committed to using debt to finance its investment in new content, it said in first quarter earnings note on Tuesday.
The new debt is being offered across dollars and euros in a five-year unsecured bullet note.
Morgan Stanley is leading the bond sale, alongside Goldman Sachs, JP Morgan, Deutsche Bank and Wells Fargo. The deal is due to price on Thursday.
In addition to an undrawn US$750m unsecured credit facility, the company said on its earnings call on Tuesday that it had more than 12 months liquidity and "substantial" financial flexibility.
It plans to use the new debt for general corporate purposes, which may include content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.
Social distancing measures being introduced across the world means all filming is now on pause, which also means the company is delaying some of its content spending.
That will mean a better than expected cash burn of around US$1bn in 2020 rather than the US$2.5bn previously expected, but that also means the company's long term goal of being sustainably cash flow positive might take longer to achieve.
"It's still a multi-year path to sustained free cash flow positive," said Spencer Neumann, CFO on Tuesday's earnings call. "It's just going to be a little bit choppier getting there. And 2019 will still be our maximum negative year."
The stay-at-home measures introduced across the globe in the fourth quarter led to a jump in subscribers. The company added almost 16 million new subscribers in the quarter, almost double the amount added in the fourth quarter of 2019.
But Netflix is expecting that figure to come down as confinement measures are lifted, predicting 7.5 million new subscribers in the second quarter.
"It's essentially a pull forward of the rest of the year," said Netflix chairman Reed Hastings on Tuesday's earnings call.
Netflix bonds have largely recovered from the turmoil seen in late March, with its 4.375% 2026 notes trading around 104-105 on Wednesday, having dipped to 99 on March 16 from a prior high of 109 on March 2.