Netflix to Raise $1 Billion in Debt for Content, Acquisitions, More

Reed Hastings - 2016 The Venetian Las Vegas - Getty - H 2018
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The streaming giant has in recent years regularly boosted its liquidity via debt offerings in April and October.

Streaming giant Netflix said Wednesday it would raise $1 billion via its latest debt offering to boost its war chest for such things as content spending and potential acquisitions. 

The company, led by CEO Reed Hastings, said it would sell approximately $1 billion in U.S. dollar and euro denominated senior unsecured bonds after ending March with $14.2 billion in long-term debt.

"Netflix intends to use the net proceeds from this offering for general corporate purposes, which may include content acquisitions, production and development, capital expenditures, investments, working capital, and potential acquisitions and strategic transactions," the company said.

Los Gatos, California-based Netflix, led by CEO Reed Hastings, has regularly raised financing via debt offerings as it has continued to burn through cash until it becomes what analysts call free cash flow positive. Netflix's debt raises have in recent years typically come in April and October and have recently been for around $2 billion each.

Management has said the firm would be on a slow move toward positive free cash flow over the coming years after a peak in its cash burn in 2019. Production shutdowns due to the coronavirus pandemic will reduce Netflix's free cash flow loss this year below the previously targeted level, the company said in its latest earnings report. It now expects its free cash flow loss for 2020 to come in at or below $1 billion.

The new debt financing also gives Netflix additional financial flexibility amid the coronavirus pandemic. In reporting its first-quarter results, it had said it ended March with cash of $5.2 billion and a $750 million unsecured credit facility that remains undrawn. Combined with an improved free cash flow outlook for 2020 due to production shutdowns, "we have more than 12 months of liquidity and substantial financial flexibility," the company said, while adding: "Our financing strategy remains unchanged — our current plan is to continue to use debt to finance our investment needs."

Netflix has been investing heavily in the licensing of content and also, until the virus crisis led productions to shut down in many parts of the world, the creation of original programming to keep subscribers from canceling their memberships. The company spent about $15 billion on content during 2019, its largest annual budget to date. 

CFO Spencer Neumann on the January earnings conference call reiterated that the company sees its current negative free cash flow as an "investment in future content to be delivered on our service." The firm also emphasized back then that it continues to see debt offerings as a good way to tap financial markets for more funding.

Media and entertainment companies' debt burdens have come into focus amid the coronavirus crisis. Credit agencies have been reviewing many firms' debt ratings given earnings are in many cases expected to take a hit amid the pandemic.