Netflix piles up on debt with new US$2 billion IOU

Netflix will tap debt markets for the second time this year with a $2 billion higher-interest bond offering as the streaming video service looks for more money to buy new content and stay ahead of the competition.

CALIFORNIA (REUTERS) - Netflix will tap debt markets for the second time this year with a US$2 billion (S$2.76 billion) higher-interest bond offering as the streaming video service looks for more money to buy new content and stay ahead of the competition.

Netflix is swimming in new subscribers and drowning in debt.

In less than three years, Netflix has issued US$7.5 billion in high risk IOUs, known as junk bonds, and that number is about to get even bigger. The streaming video service Monday announcing it's borrowing another US$2 billion as it goes back to the bond market for the second time this year.

"Netflix at the moment is burning through a ton of cash. They are raising debt in order to fund things like content acquisition. Netflix has started producing its own shows, which are very expensive, and continues to try to buy licenses for existing media all that has meant they have raised more than $10 billion in fact since they went public in 2002," said

Reuters debt market correspondent Kate Duguid.

So far, the borrowing and buying strategy is paying off. Netflix's subscriber numbers - rose to 137 million worldwide last quarter - as it looks to fight off challenges from Amazon Prime Video, Hulu, and a major new kid soon to hit the block - Walt Disney. But Netflix's heavy debt load is weighing on investor sentiment.

Negative bets against Netflix bonds have more than tripled this year to an all-time high, according to data from IHS Market. And Netflix's stock is down 22 per cent from its all-time high in June - though still up a whopping 71 per cent so far this year.

Netflix is not alone in the tapping the costlier side of the corporate borrowing market - with junk bond issuance at a US$1 trillion this year.

"Because we are in a low rate environment investors are still on the hunt for yield and one of the few places that's available is the junk bond market. So there is tons of demand for junk bonds like the one Netflix issued today," said Reuters debt market correspondent Kate Duguid.

But buyers beware - if the economy starts to sputter - some fear all this risky lending could tumble, leaving investors with a big hole in their pockets.