Netflix to sell $1.5 billion in bonds

Netflix Inc. the huge US-based entertainment company provides streaming media, video on demand and now produces films and TV. The firm will sell $1.5 billion of bonds the company said in a statement

The company is seeking a yield that will be between 5.75 percent and 6 percent over 10.5 years according to sources who have knowledge of the matter but want to remain anonymous because the details are private. A Netflix representative did not immediately answer a call seeking comment.

Netflix

Netflix is an American entertainment company founded back in August of 1997 by Reed Hasting and Marc Randolph in Scott's Valley California. It is headquartered in Los Gatos California. In 2013 the company expanded into film and television production as well as on-line distribution. The company has offices in many countries.

In 2007 the company expanded into streaming media. It expanded into Canada in 2010. By 2016 its streaming service was operating in over 190 countries although not mainland China.

In 2012 it launched it own series Lilyhammer. It has since expanded the production of both film and television series. In 2016 alone the company released an estimated 126 original series beating any other network or cable channel.

As of April this year Netflix had 125 million subscribers globally. There were 56.71 million in the US.

Netflix has done well lately

As reported in a recent Digital Journal article, Netflix shares hit a record high just a few days ago as many analysts view it positively even though it has a large debt.

Last quarter Netflix added 7.41 million subscribers boosting its cash flow. This is the strongest start to a year since the company went public. Moody's has upgraded the company's credit rating as it is expected that growth will continue and cash flow turn positive.

Rating and use of bonds

S&P Global Ratings gave the bonds a B+ grade four steps below the investment grade or "junk". Free cash flow deficits will be greater than $3 billion in 2018 according to S&P caused by Netflix's heavy investments to add and retain subscribers.

Money from the bonds will be employed for general corporate purposes and could include content, production and development as well as potential acquisitions. A recent Digital Journal article reports that the company is planning to buy theaters to show its films.

John McClain a portfolio manager analyst at Diamond Hill Capital Management pointed out that with a maturity of 10.5 years the bonds are exposed to further rises in interest rates.

Netflix debt cushioned by huge stock market value

Netflix stock is worth a whopping $142 billion and it has been the best-performing stock on the S & P in 2018.

In October Netflix debt was 7.4 times Ebitda, earnings before interest taxes, depreciation and amortization, at the end of March this year, but Moodys expect this to drop comfortably to under 5 times by the end of 2020 as more subscribers are enrolled and revenue increases.

Previously published in Digital Journal