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Netflix offers $2 billion more in debt to fund its content spending

Netflix offers $2 billion more in debt to fund its content spending
Technology
The streaming service says it plans to use the debt funding for general purposes, including “content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.”

The funds will be raised through unsecured notes that will be issued in two series in both U.S. dollars and euros, it says.

Netflix spends a lot of cash to stay ahead of the competition and acquire subscribers. It believes that its investment in original content — shows and movies that users can’t find anywhere else, and that it owns the rights to — will help the company to generate revenues in the years ahead.

In January, Netflix said its cash burn would peak in 2019, and its free cash flow deficit for 2019 will end up around $3.5 billion, CNBC notes .

This year, its content budget is expected to reach $15 billion, Variety reported earlier.

The additional $2 billion in debt will bring Netflix’s long-term debt to around $12.3 billion, Variety now points out. It also says Netflix hasn’t paid down any significant amount of that debt to date. Instead, its interest on that debt is increasing — $135.5 million in interest expense in Q1 2019, or around 3% of revenue. That’s up 67% from the $81.2 million a year ago, the report adds.

In a letter to shareholders earlier this year, Netflix warned investors it would continue to raise debt.

“As long as we judge our marginal  after-tax cost of debt to be lower than our marginal cost of equity, we’ll continue to finance our working capital needs through the high yield market,” it read.

The additional funds come just ahead of several notable streaming service launches, including Apple TV+ which is smaller on the content side but will tap into Apple’s massive iPhone user base; AT&T’s WarnerMedia service; and perhaps most significantly, Disney+ .
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