Netflix Sells $1.9 Billion of Junk Bonds to Finance More Shows

Netflix tapped the junk-bond market again to help finance its next wave of shows, according to Bloomberg.

The world’s largest online television network sold $1.9 billion of senior bonds in its largest-ever dollar-denominated offering. That was up from a planned $1.5 billion, according to a statement. The 10.5-year notes yield 5.875 percent, within the initially discussed range of 5.75 percent to 6 percent, according to people with knowledge of the matter, who asked not to be identified because the details are private.

Netflix’s sale follows a quarter in which it added 7.41 million subscribers, its strongest start to a year since going public 16 years ago. Moody’s Investors Service upgraded the company’s credit ratings earlier this month, citing expectations that growth will continue and eventually turn its cash flows positive.

Even with a better credit rating, Netflix is still a junk-rated issuer whose operations continue to burn through cash. That hasn’t seemed to bother debt investors too much, who have proven willing time and time again to lend to the company as it invests in programming to fuel subscriber growth, according to Rahim Shad, a senior analyst in high-yield credit research at Invesco.

With a stock market value of around $140 billion and the best-performing stock in the S&P 500 this year, Netflix has often touted its “thick“ equity cushion as reason to buy its debt. It’s historically borrowed to invest in original content and plans to continue to do so, according to a statement to shareholders last week. Debt financing is cheaper than equity, it said.

Netflix had $6.5 billion of long-term debt as of March 31, $1.6 billion of which came from its largest-ever dollar-denominated sale in October. Its debt was 7.4 times Ebitda, or earnings before interest, tax, depreciation and amortization, according to Moody’s, which uses adjusted figures for the twelve months ended March 31. It should drop to “comfortably“ under 5 times by the end of 2020 as Netflix continues to boost subscribers and revenue, Moody’s analyst Neil Begley said in an April 11 report.