Netflix borrowing $2 billion as war for content heats up

California: Netflix is selling bonds as it continues to bolster its original content in the face of expanding competition.

The company is offering around $2 billion of bonds between dollars and euros, according to a statement Monday. The proceeds of the sale will be used for general corporate purposes, which may include content acquisitions, production and development and potential acquisitions.

The dollar-denominated 10.5-year bonds, which can’t be bought back, may yield around 5%, while the euro notes could pay in the high 3% range, according to people with knowledge of the matter, who asked not to be identified as the details are private. Given Netflix’s current trading levels, it could realize a blended coupon rate of less than 4.25%, according to Bloomberg Intelligence analyst Stephen Flynn.

Netflix is issuing debt after reporting earnings that beat analyst estimates and saw overseas growth that helped sooth investors’ concerns about a slowdown at home. The company burned through $551 million of cash in the third quarter and is “slowly” moving toward becoming free cash flow positive, Chief Executive Officer Reed Hastings said in a letter to shareholders last week. In the meantime, Netflix will continue to tap the high-yield market for its investment needs, he said.

The Los Gatos, California-based company reiterated expectations to burn through $3.5 billion in cash this year as the war for content heats up. It’s been raising prices – often at the expense of subscriber gains – in some of its largest territories, trying to shift toward profitability as streaming service competition mounts from companies such as Walt Disney Co., AT&T Inc. and Apple Inc.

Netflix has historically relied on the high-yield bond market to finance its growth, typically issuing debt following its first- and third-quarter earnings in April and October, respectively. Its debt load, including operating lease liabilities, has steadily grown to around $13.5 billion since first tapping the market in 2009, according to data compiled by Bloomberg.

The company last borrowed $2.24 billion of junk bonds in April, and said that it would reduce its reliance on debt financing at the time. CEO Hastings walked back that language in a July letter to shareholders, saying Netflix planned to still use the high-yield market to fund content investments.

Netflix’s shares and bonds were little changed in early trading in New York. The stock opened at around $276 Monday.

Morgan Stanley, Goldman Sachs Group Inc., JPMorgan Chase & Co., Deutsche Bank AG and Wells Fargo & Co. are managing the bond sale, according to a separate person with knowledge of the matter. The notes are expected to price Tuesday, the person said, asking not to be identified as the details are private.