Bond Investors Binge On Netflix Junk

Streaming media giant Netflix (Nasdaq: NFLX) returned to the primary market Tuesday with a US$2bn high yield bond sale, as the company continues to pour cash into original content.

Los Gatos, California-headquartered Netflix took advantage of relative market calm to offer new euro- and U.S. dollar-denominated debt, amid intensifying competition for video consumption.

The company said it intends to use the net proceeds from the private placement sale for general corporate purposes, which may include content acquisitions, production, and development, capital expenditures, investments, working capital, as well as other potential purchases and strategic transactions.

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At the time of launch, market participants had placed pricing of the 10 ½-year non-callable, U.S. dollar- and euro-denominated securities at yields to maturity of 4.875% and 3.625%, respectively. Demand for the junk bonds was also decent, with the multi-currency tranches each having improved by around 25 basis points from initial price talk.

Yields on the 10-year U.S. Treasury note and German Bund were last bid at around 1.778% and -0.376%, respectively.

The ‘BB’-rated issuance was being jointly managed by Goldman SachsDeutsche BankJ.P. MorganMorgan Stanley, and Wells Fargo.

The fresh debt offering follows hot on the heels of the firm’s third-quarter of 2019 financial results, which fell somewhat short on expected subscriber additions but surged on revenues.

In Q3’19, Netflix generated a 31% spike in year-over-year sales to US$5.2bn, while doubling its operating income to US$1.0bn. It also posted total paid net adds of 6.8m, slightly shy of its 7.0m expected, but a healthy increase over the 6.1m in the same year-ago quarter.

The vast lion’s share of paid net adds stemmed from overseas subscribers, with its domestic total of 500k dwarfed by its 6.3m international additions – a rise of 23% year-on-year.

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