Netflix to raise an additional $ 2 billion through debt to fuel content spending

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UPDATE: Netflix, which is burning shipments of money with a projected content budget of $ 15 billion for 2019, is once again increasing its debt load.

On Monday, October 21, Netflix announced plans to offer a total principal amount of approximately $ 2.0 billion in junk bonds, denominated in both US dollars and euros. On October 22, the company announced that the price of the bond issue had been increased to approximately $ 2.2 billion (of which € 1.1 billion in total principal of 3.625% senior bonds maturing in 2030 and $ 1.0 billion in principal of its 4.875% senior bonds due 2030).

As of September 30, Netflix reported debt of $ 12.43 billion, compared to $ 10.36 billion at the end of 2018. The latest proposed finance debt offer would be the eighth time in the past five years that Netflix has raised $ 1 billion. dollars or more through debt. The streaming giant last raised $ 2.2 billion in junk bonds in April 2019.

Netflix continues to spend billions on programming, as it faces a wave of new streaming rivals entering the market, including Disney, Apple, WarnerMedia, and NBCUniversal. Netflix needs funding to cover an estimated $ 15 billion content budget in 2019 on a gross cash basis. Last week, announcing third quarter 2019 results, Netflix told investors it plans to raise more debt. For full year 2019, the streamer expects negative free cash flow of $ 3.5 billion (up from $ 3.0 billion last year).

“With our rapidly growing revenue base and expanding operating margins, we will be able to fund a greater portion of our content spending internally,” the company told shareholders in its October 16 letter. “As we move slowly towards [free cash flow] positive, our plan is to continue to use the high yield market in the interim to fund our investment needs.

To date, Netflix has not repaid any significant amount of long-term debt. It paid $ 160.7 million in interest expense for the third quarter (approximately 3.1% of quarterly revenue) compared to $ 108.9 million (2.7% of revenue) during the period l ‘last year.

For the third quarter of 2019, Netflix reported revenue up 31% year-over-year and announced a 16.5% increase in average revenue per customer (ARPU) for its US customer base in streaming. The company exceeded national subscriber growth targets for the third quarter, but the failure was not as severe as the previous quarter.

In addition to long-term debt, Netflix has billions of off-balance sheet content spending obligations, most of which are due over the next three years. As of September 30, 2019, the company had $ 19.1 billion in content payment obligations, of which $ 10.8 billion was not on its balance sheets “because they did not yet meet asset recognition criteria.” according to his 10-Q record last Friday. According to Netflix, on average, it expects more than 90% of its licensed and original streaming content assets to amortize within four years of its first month of availability on the service.

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