What's Up With Netflix, Inc. Borrowing Another $400 Million?

Netflix is tapping into the low-interest capital markets again. Here's how Netflix is doing it -- and why.

Feb 7, 2014 at 6:15PM

Image source: Netflix.

In its recent fourth-quarter earnings report, Netflix (NASDAQ:NFLX) said it would raise another $400 million of long-term debt: "Given the current favorable interest rate environment, we think a prudent step in Q1 is to raise an additional $400 million of long-term debt on terms similar to our $500 million raise last year. At $900 million of total long term debt, we will have an extremely modest debt to equity ratio."

Expanding on the thinking behind this move, CFO David Wells explained:

We don't think that we'll need the money this year or next year. We may not need it at all. But given our expansion plans with international and given our content expansion, which tends to run a little bit ahead on cash, we think the current interest rate environment is pretty attractive. So we're going to add to the balance sheet.

So that's the plan. Why wait? In short order, Netflix formally announced its intention to sell $400 million of senior debt notes, then tapped Morgan Stanley to run the bond sale. The bank set the terms of the loan to 5.75% interest under a 10-year term, benchmarked against 10-year Treasury notes.

Morgan Stanley will also initially own half of the new bonds, with the rest spread across three major investment firms. All four banks can sit on their Netflix bonds or resell them for profit.

This structure is nearly identical to the $500 million bond sale Netflix ran last year.

NFLX Non-Current Portion of Long Term Debt (Quarterly) Chart

NFLX Non-Current Portion of Long-Term Debt (Quarterly) data by YCharts.

The $400 million of new funds is not officially earmarked for anything in particular. "Netflix intends to use the net proceeds from this offering for general corporate purposes, including capital expenditures, investments, working capital and potential acquisitions and strategic transactions," the announcement says -- standard boilerplate stuff that doesn't tie Netflix down to any particular use of the money.

That said, Netflix has said that international growth largely gets funded out of the profits from domestic DVD and streaming services. With that in mind, this $400 million cash injection seems to be the start of an even larger original content push, on top of the several new shows already lined up for a 2014 release.

That's Netflix's capital strategy in a nutshell: Grow international markets as fast as your internal profits will allow, and bet on original productions with borrowed money -- as long as interest rates stay low, anyhow.

Can you find the next Netflix-style growth stock?
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Anders Bylund owns shares of Netflix. The Motley Fool recommends and owns shares of Netflix. Try any of our Foolish newsletter services free for 30 days.

We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers