Netflix announced on Monday (October 21) that it would be raising an additional $2 billion in debt in order to fund further content creation.
The media giant has raised debt in the past to assist with the growth of its original content collection. For example, April saw Netflix offer $2 billion in new debt.
CNBC reports that this cash burn could well continue as competition begins to release its services and content. For example, Apple TV+, Disney+, Peacock and HBO Max will all come out in the coming weeks and months.
In its Q3 2019 earnings report released last week, Netflix acknowledged the new streaming services without indicating they felt threatened. They also signalled a focus on new original content, saying that its budget allowed it to take ‘bold swings’ in new projects.
The shareholder letter went on to say that the company expected to fund more of its content spending internally, therefore resulting in better free cash flow for 2020. This is because the cash burn is expected to reach its height in 2019 before going down.
Netflix stated that the funding plans for the proceeds were spread across ‘content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.’
MarketWatch reports that Netflix has funded most of its content acquisition and production via the issue of junk bonds. Currently, its long term debt is set at around $12.5 billion. Bond trading platform MarketAxess indicates that the 5.875% notes – the companies’ most active bonds, which mature in November 2028 – last received a quote at a yield spread of 271 basis points over comparable Treasurys.