Netflix formally announced it is seeking to offer $400 million aggregate principal amount of 10-year senior notes due 2024 to institutional investors, coin it expects to use for acquiring original content and expanding into Europe.
The Internet streaming leader had disclosed plans to raise the additional debt when it reported fourth-quarter 2013 earnings last month. As of Dec. 31, 2013, Netflix had $500 million in 5.375% senior notes, and the company said it hopes to obtain similar terms for the new offering.
[UPDATE: After market close Tuesday, Netflix announced the pricing of the debt offering: Interest on the notes will accrue at 5.75% per year, payable beginning on Setp. 1, 2014, and will mature on March 1, 2024, unless earlier repurchased or redeemed. The debt sale is expected to close on Feb. 19, 2014, subject to closing conditions.]
“At $900 million of total long-term debt, we will have an extremely modest debt-to-equity ratio,” CEO Reed Hastings and CFO David Wells wrote in their Q4 letter to shareholders.
With the additional debt, Netflix’s debt-to-equity ratio would be about 0.67 if calculated using only long-term debt. However, Netflix’s D/E ratio determined using total liabilities — including $1.3 billion in non-current content liabilities as of the end of 2013 — would be about 3.36.
In its 10-K annual report filed Monday with the SEC, Netflix noted that it plans to “significantly increase our investments in international expansion, including substantial expansion in Europe in 2014, and in original content. As a result, and to take advantage of the current favorable interest rate environment, we plan to obtain approximately $400 million in long term debt in the first quarter of 2014.”
Netflix has said its spending on original content will substantially increase in 2014, though it will still representing less than 10% of overall global content expense. The second season of Netflix’s “House of Cards,” the company’s best-known original series, is set to debut Feb. 14 in all territories.
In the fourth quarter of 2013, Netflix added 2.33 million streaming subscribers in the U.S. during the fourth quarter of 2013 — beating Wall Street expectations of 2.05 million net adds — to reach 33.4 million total. Overseas, the company added 1.7 million to stand at 10.9 million internationally at the end of the year.