Netflix euro bonds rally as company steps back from debt raising

Netflix Inc. bonds are up today after the company announced Jan. 19 that it will no longer use the debt markets to raise financing to fund its operations.

The borrower's euro 3% notes due 2025 are up more than 1.5 points at 108.75/109.375, while the euro 3.625% notes due 2020 have surged 3.5 points to 117/117.75.

In its shareholder letter yesterday as part of its fourth-quarter 2020 results, the company commented that: "We believe we are very close to being sustainably FCF positive. For the full year 2021, we currently anticipate free cash flow will be around break even (vs. our prior expectation for -$1 billion to break even). Combined with our $8.2 billion cash balance and our $750m undrawn credit facility, we believe we no longer have a need to raise external financing for our day-to-day operations. Our 5.375% February 1, 2021 bonds mature in Q1. We plan on repaying the bond at maturity out of cash on hand, as we are currently well above our minimum cash needs. As we generate excess cash, we intend to maintain $10B-15B in gross debt and will explore returning cash to shareholders through ongoing stock buybacks, as we did in the past (2007-2011).”

The company has been a frequent and sizeable issuer and has 22 outstanding bonds totaling $16.4 billion-equivalent, according to Refinitiv Eikon. Despite being largely free cash flow negative for much of this period, the firm has been a favored credit of the market, with accounts largely attracted to its growing subscriber base and strong brand name. It has also been a clear winner during the COVID-19 crisis as lockdowns have kept people indoors.

Its latest results show that revenue continues to grow by over 20% year on year, while average paid streaming memberships increased 23% year over year in the fourth quarter of 2020. For the full year, the company's 37 million paid net additions represented a 31% increase from 2019's figure.

Netflix is a Los Gatos, Calif.–based global streaming-media services provider. It is rated BB/Ba3 with positive outlooks at both rating agencies.