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Netflix Raises Debt Ceiling

29 Jan, 2013 By: Erik Gruenwedel


SVOD pioneer said it plans to raise $500 million to refinance existing debt and fund future original programming, among other purposes


Netflix Jan. 29 said it would offer $500 million in new senior notes to institutional buyers -- using approximately $225 million of the net proceeds to redeem its outstanding 8.50% senior notes due 2017, among other purposes.

The offer was upped $100 million from a $400 million debt offering earlier in the day.

In other words, Netflix wants to take advantage of current low interest rates to refinance existing debt carrying higher interest rates. Los Gatos, Calif.-based Netflix first announced it was planning to make the new debt offering in a letter to shareholders accompanying its Jan. 23 fourth-quarter earnings release.

The debt offering raises Netflix’s debt ratio (liabilities to assets) 6% to 87% ($3.4 billion in liabilities to $3.9 billion in assets), leaving it with scant financial flexibility, some analysts say. 

"They have a very high share price, and I think it makes no sense to raise debt," Wedbush Securities' Michael Pachter wrote in an email. "They should be issuing shares to pay for their obligations, their cost of equity is cheaper than debt."

Eric Wold, analyst with B. Riley Caris in Los Angeles, said higher debt is not an issue, as Netflix has been operating with a significant level of content liabilities for some time. In addition, Wold reiterated that Netflix management was adamant that it planned on raising additional debt financing to refinance existing debt as well as help cover expected content spending near-term for its original programming.

"If domestic streaming subscriber growth can at least stay ahead of content spending growth, then Netflix should not have an issue covering this additional debt," Wold wrote in an email.

Indeed, co-founder and CEO Reed Hastings, in the shareholder letter, said the debt financing would “give us additional reserves as well as increased flexibility to fund future originals.”

Netflix is bowing five original series this year, in addition to the second season of black comedy “Lilyhammer.” Beginning Feb. 1, Netflix will launch all 13 episodes of political drama, “House of Cards,” starring Kevin Spacey and Robin Wright, and directed in part by David Fincher.

Spacey plays Francis Underwood, the ambitious House majority leader, who, together with his wife, seeks to consolidate his power at the expense of anyone, including the newly elected president. The series’ showrunner (person responsible for day-to-day operations of a TV show), Beau Willimon, co-wrote last year’s political drama, The Ides of March, starring George Clooney and Ryan Gosling.


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