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NFLX > issuing $2.2B junk bonds...

Netflix's not-so-secret weapon to win the streaming wars

Faced with staggering content costs, Netflix (NFLX) is turning to a reliable recipe to meet its vast cash needs: raising junk bonds.
Netflix, bracing for competition from the likes of Disney (DIS), revealed plans this week to issue another $2.2 billion of high-yield debt.

"Netflix has been a serial issuer of debt," Patrice Cucinello, director at Fitch Ratings, told CNN Business. "It's necessary in order to compete in this landscape where everyone is bulking up."

Even though Netflix is considered a risky borrower due to its epic cash burn, the company had no problem borrowing more money at generous terms.

Netflix is no stranger to the junk bond market. The company has raised $12.8 billion of high-yield debt since November 2009, according to research firm Dealogic. More than three-quarters of that haul has come in just the past three years.

That corresponds with Netflix's intensifying cash burn. The streaming giant has burned through $7.6 billion over the past four years.

Disney revealed plans earlier this month to launch its own streaming service later in 2019. Priced at just $6.99 a month, Disney+ could pose a formidable adversary for existing streaming services like Netflix and Hulu.

AT&T's (T) WarnerMedia, the parent company of CNN, plans to launch its own service by the end of 2019.

NBCUniversal, meanwhile, announced in January it will debut a streaming service in 2020. And that rival platform could take away streaming stalwarts like "The Office" and Friends" from Netflix. NBCUniversal has reportedly begun internal talks about removing "The Office" from Netflix when the show's contract expires in 2021.

Following the latest junk bond sale, Netflix's gross leverage will climb to 7.5 times its adjusted profits, according to Moody's.
Netflix could be downgraded deeper into junk if "negative cash flows persist at high levels" or "leverage remains stubbornly high," Moody's analyst Neil Begley wrote in a report this week.