Netflix, Inc.
UPDATE 1: Primary Coverage: Netflix’s New 2029 Notes Likely Do Not Restrict Company From Financing Content Acquisition With Additional Debt
Tue 10/23/2018 15:02 PM
UPDATE 1: 3:02 p.m. ET 10/23/2018: UPDATE: This article has been updated to reflect updated deal terms.
Netflix announced that it will issue $800 million of 6.375% Dollar Senior Notes due 2029 and €1.1 billion of 4.625% Euro Senior Notes due 2029 (the “notes”),, to be used for general corporate purposes, including “content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.” The notes are unsecured and at issuance will not be guaranteed by any of Netflix’s subsidiaries.
Netflix’s capital structure, pro forma for the issuance of the notes, is illustrated below for reference.
As illustrated above, Netflix has a substantial amount of outstanding debt. Although the company has disclosed that its LTM EBITDA as of Sept. 30 was approximately $2 billion, it also disclosed that its LTM free cash flow was approximately negative $2.2 billion.
Nevertheless, in the Offering Memorandum for the notes, the company has stated:
“Our cash flows provided by our operating activities have been negative in each of the last three years, primarily as a result of our decision to increase the amount of original streaming content available on our service. To the extent our cash flows from operations continue to be negative, we anticipate seeking additional capital.”
As illustrated in the 2029 Notes Summary, the notes include a quasi-investment-grade negative covenant package. Although Netflix and its domestic restricted subsidiaries are restricted from incurring liens on, and consummating sale-and-leaseback transactions in respect of, Principal Properties (generally defined as all assets other than those deemed by the board to be immaterial to Netflix’s business), only Netflix’s domestic restricted subsidiaries are restricted from incurring additional debt.
The main exception to these covenants is a basket permitting liens on, and sale-and-leasebacks in respect of, Principal Properties, and debt of domestic restricted subsidiaries not to exceed, in the aggregate, the greater of $3.75 billion and 2.75x LTM EBITDA.
Given Netflix’s reported $2 billion LTM EBITDA, this exception permits about $5.5 billion of debt secured by liens on Principal Properties and domestic subsidiary debt.
Given Netflix’s approximately $3 billion of cash, although the notes do not include any leverage tests, based on the company’s $2 billion LTM, the company’s net leverage ratio following the issuance of the notes will be approximately 3.7x.
Separate debt and liens baskets also permit Netflix’s Content Project Subsidiaries (generally defined to include Netflix’s subsidiaries that are formed to acquire content) to incur secured debt to acquire content.
Cross-Defaults - The notes do not include cross-default provisions, including between the Dollar Notes and the Euro Notes. As such, if Netflix fails to make any payment under any of its outstanding debt or if any of its outstanding debt is accelerated, the relevant tranche of notes will not be affected.
Original Story 2:31 a.m. UTC on Oct. 23, 2018
Primary Coverage: Netflix’s New 2029 Notes Likely Do Not Restrict Company From Financing Content Acquisition With Additional Debt
Netflix announced on Oct. 22 that it will issue $2 billion of 2029 senior notes (the “notes”), comprising a tranche of dollar notes and a tranche of euro notes, to be used for general corporate purposes, including “content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.” The notes are unsecured and at issuance will not be guaranteed by any of Netflix’s subsidiaries.
Netflix’s capital structure, pro forma for the issuance of the notes, is illustrated below for reference.
As illustrated above, Netflix has a substantial amount of outstanding debt. Although the company has disclosed that its LTM EBITDA as of Sept. 30 was approximately $2 billion, it also disclosed that its LTM free cash flow was approximately negative $2.2 billion.
Nevertheless, in the Offering Memorandum for the notes, the company has stated:
As illustrated in the 2029 Notes Summary, the notes include a quasi-investment-grade negative covenant package. Although Netflix and its domestic restricted subsidiaries are restricted from incurring liens on, and consummating sale-and-leaseback transactions in respect of, Principal Properties (generally defined as all assets other than those deemed by the board to be immaterial to Netflix’s business), only Netflix’s domestic restricted subsidiaries are restricted from incurring additional debt.
The main exception to these covenants is a basket permitting liens on, and sale-and-leasebacks in respect of, Principal Properties, and debt of domestic restricted subsidiaries not to exceed, in the aggregate, the greater of $3.75 billion and 2.75x LTM EBITDA.
Given Netflix’s reported $2 billion LTM EBITDA, this exception permits about $5.5 billion of debt secured by liens on Principal Properties and domestic subsidiary debt.
Given Netflix’s approximately $3 billion of cash, although the notes do not include any leverage tests, based on the company’s $2 billion LTM, the company’s net leverage ratio following the issuance of the notes will be approximately 3.7x.
Separate debt and liens baskets also permit Netflix’s Content Project Subsidiaries (generally defined to include Netflix’s subsidiaries that are formed to acquire content) to incur secured debt to acquire content.
Cross-Defaults - The notes do not include cross-default provisions, including between the dollar notes and the euro notes. As such, if Netflix fails to make any payment under any of its outstanding debt or if any of its outstanding debt is accelerated, the relevant tranche of notes will not be affected.
Capital Structure and Use of Proceeds
Netflix announced that it will issue $800 million of 6.375% Dollar Senior Notes due 2029 and €1.1 billion of 4.625% Euro Senior Notes due 2029 (the “notes”),, to be used for general corporate purposes, including “content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.” The notes are unsecured and at issuance will not be guaranteed by any of Netflix’s subsidiaries.
Netflix’s capital structure, pro forma for the issuance of the notes, is illustrated below for reference.
As illustrated above, Netflix has a substantial amount of outstanding debt. Although the company has disclosed that its LTM EBITDA as of Sept. 30 was approximately $2 billion, it also disclosed that its LTM free cash flow was approximately negative $2.2 billion.
Nevertheless, in the Offering Memorandum for the notes, the company has stated:
“Our cash flows provided by our operating activities have been negative in each of the last three years, primarily as a result of our decision to increase the amount of original streaming content available on our service. To the extent our cash flows from operations continue to be negative, we anticipate seeking additional capital.”
Notable Concerns
As illustrated in the 2029 Notes Summary, the notes include a quasi-investment-grade negative covenant package. Although Netflix and its domestic restricted subsidiaries are restricted from incurring liens on, and consummating sale-and-leaseback transactions in respect of, Principal Properties (generally defined as all assets other than those deemed by the board to be immaterial to Netflix’s business), only Netflix’s domestic restricted subsidiaries are restricted from incurring additional debt.
The main exception to these covenants is a basket permitting liens on, and sale-and-leasebacks in respect of, Principal Properties, and debt of domestic restricted subsidiaries not to exceed, in the aggregate, the greater of $3.75 billion and 2.75x LTM EBITDA.
Given Netflix’s reported $2 billion LTM EBITDA, this exception permits about $5.5 billion of debt secured by liens on Principal Properties and domestic subsidiary debt.
Given Netflix’s approximately $3 billion of cash, although the notes do not include any leverage tests, based on the company’s $2 billion LTM, the company’s net leverage ratio following the issuance of the notes will be approximately 3.7x.
Separate debt and liens baskets also permit Netflix’s Content Project Subsidiaries (generally defined to include Netflix’s subsidiaries that are formed to acquire content) to incur secured debt to acquire content.
Cross-Defaults - The notes do not include cross-default provisions, including between the Dollar Notes and the Euro Notes. As such, if Netflix fails to make any payment under any of its outstanding debt or if any of its outstanding debt is accelerated, the relevant tranche of notes will not be affected.
Original Story 2:31 a.m. UTC on Oct. 23, 2018
Primary Coverage: Netflix’s New 2029 Notes Likely Do Not Restrict Company From Financing Content Acquisition With Additional Debt
Capital Structure and Use of Proceeds
Netflix announced on Oct. 22 that it will issue $2 billion of 2029 senior notes (the “notes”), comprising a tranche of dollar notes and a tranche of euro notes, to be used for general corporate purposes, including “content acquisitions, production and development, capital expenditures, investments, working capital and potential acquisitions and strategic transactions.” The notes are unsecured and at issuance will not be guaranteed by any of Netflix’s subsidiaries.
Netflix’s capital structure, pro forma for the issuance of the notes, is illustrated below for reference.
As illustrated above, Netflix has a substantial amount of outstanding debt. Although the company has disclosed that its LTM EBITDA as of Sept. 30 was approximately $2 billion, it also disclosed that its LTM free cash flow was approximately negative $2.2 billion.
Nevertheless, in the Offering Memorandum for the notes, the company has stated:
“Our cash flows provided by our operating activities have been negative in each of the last three years, primarily as a result of our decision to increase the amount of original streaming content available on our service. To the extent our cash flows from operations continue to be negative, we anticipate seeking additional capital.”
Notable Concerns
As illustrated in the 2029 Notes Summary, the notes include a quasi-investment-grade negative covenant package. Although Netflix and its domestic restricted subsidiaries are restricted from incurring liens on, and consummating sale-and-leaseback transactions in respect of, Principal Properties (generally defined as all assets other than those deemed by the board to be immaterial to Netflix’s business), only Netflix’s domestic restricted subsidiaries are restricted from incurring additional debt.
The main exception to these covenants is a basket permitting liens on, and sale-and-leasebacks in respect of, Principal Properties, and debt of domestic restricted subsidiaries not to exceed, in the aggregate, the greater of $3.75 billion and 2.75x LTM EBITDA.
Given Netflix’s reported $2 billion LTM EBITDA, this exception permits about $5.5 billion of debt secured by liens on Principal Properties and domestic subsidiary debt.
Given Netflix’s approximately $3 billion of cash, although the notes do not include any leverage tests, based on the company’s $2 billion LTM, the company’s net leverage ratio following the issuance of the notes will be approximately 3.7x.
Separate debt and liens baskets also permit Netflix’s Content Project Subsidiaries (generally defined to include Netflix’s subsidiaries that are formed to acquire content) to incur secured debt to acquire content.
Cross-Defaults - The notes do not include cross-default provisions, including between the dollar notes and the euro notes. As such, if Netflix fails to make any payment under any of its outstanding debt or if any of its outstanding debt is accelerated, the relevant tranche of notes will not be affected.
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