Netflix to raise Ksh. 190 billion in biggest round of debt financing

In the span of just 2 decades, Netflix has gone from a convenient streaming knockoff to one of the most powerful players in the media industry. This is credited to Netflix’s technology and the company’s focus on bringing streaming content to the mainstream. Netflix’s success is also owed in part to its willingness to invest in its content library. An expansive investment that has enabled the company own thousands of hours of on-demand content.

Netflix continues that investment today with the announcement that it will raise another $1.9 billion(Ksh 190 billion) in debt- an amount that has in the last few hours been revised from $1.5 billion(Ksh 150 billion). According to a statement released by Netflix, the company intends to use the net proceeds from this offering for general corporate purposes, which may include content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.

The company which raised $1.6 billion(Ksh 160 billion) in debt last October, has been spending aggressively on original content to drive subscriber growth around the world.

The announcement comes shortly after a stellar Q1 earnings report, with 7.41 million new streaming subscribers, outperforming estimates and handily beating out last year’s growth of 4.95 million new subscribers. In total, Netflix now has 125 million subscribers across the globe.

Netflix crushed Wall Street’s estimates for subscriber additions earlier this month, driven by hit original shows “Altered Carbon” and “Jessica Jones”, and said it looks to spend nearly $8 billion on content in 2018.

Netflix had around $2.6 billion(Ksh 260 billion) in cash, according to the company’s latest quarterly report. Netflix has been routinely turning to debt to financing its massive content spending instead of raising that through equity markets, “we believe the debt has a lower cost of capital compared to equity,” as the company said in its April 16 letter to shareholders. The latest proposed debt offering is the fifth time in a little more than three years that Netflix is raising $1 billion or more through bonds.

As of March 31, Netflix had $6.54 billion(Ksh 654 billion) in long-term debt and $17.9 billion(Ksh 1.7 Trillion) in streaming content payment obligations (of which $3.44 billion are long-term content payment obligations). The company had $2.6 billion in cash and equivalents on hand as of the end of the first quarter of 2018.

Netflix’s interest expenses have risen as it assumes a bigger debt load. In Q1 2018, interest expense was $81.2 million, up 74% from $46.7 million in the year-earlier period. But as a percentage of operating income, its interest expense was the same 18.2% for both quarters.

Netflix said the latest debt offering of 5.875% senior notes, set to mature Nov. 15, 2028, is expected to close on April 26. The company will begin paying interest on the notes in cash semi-annually beginning Nov. 15, 2018.