Is Netflix asking for $1.5 billion as a last-ditch survival effort?
Previously we reported that Netflix, the world’s most extensive online television network, lost against Starzplay in revenue and user base. Now it might lose to bankruptcy as investors are less inclined to give them money.
The company is selling $1.5 billion in senior bonds, according to an announcement on Monday.
So, who is buying?
The 10.5-year junk-rated notes can’t be brought back and are expected to be priced Monday, according to a person with knowledge of the matter, who asked not to be identified because the details are private, reported Bloomberg.
Netflix’s sale plan follows a quarter in which it tallied more than 7 million subscribers, its most active start to a year since going public 16 years ago.
That’s ‘the good,’ but why is no one buying?
Heavily in debt
Netflix may sell another $3 billion of bonds by this time next year, according to a Bloomberg Intelligence report.
It’s a company already heavily leveraged.
Netflix has $6.5 billion of long-term debt as of March 31.
It has historically borrowed to invest in original content and plans to continue to do so, according to a statement to shareholders last week.
With a stock market value of $142 billion and the best-performing stock in the S&P 500 this year, Netflix has often promoted its “thick” equity cushion as a reason to support its debt.
“It’s not a great idea to lend to a company that burns cash for 10-plus years at five percent or below,” McClain said, noting that he’d consider getting involved in the yield if it was closer to six percent. “There will be a better entry point driven by higher rates or deterioration in company fundamentals down the road.”
Deterioration, or external factors such as competition getting the upper hand on the market.
Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Wells Fargo & Co. are managing the bond sale, Bloomberg reported.