Netflix Revives Debt Strategy to Fund Warner Bros. Acquisition

Netflix Seeks to Rebuild Debt to Fund Warner Bros. Acquisition Netflix, the streaming giant once known as Debtflix, is revisiting its debt-heavy past to finance its planned acquisition of most of Warner Bros. Discovery Inc. The company is looking to add tens of billions of dollars in debt to its balance sheet, a move that will likely allow it to boost the price it pays in any bidding war that emerges. According to analysts, Netflix's credit profile has significantly improved since the pandemic, enabling the company to maintain its investment-grade status. However, the acquisition of Warner Bros. will still require a substantial amount of debt financing. The company has already secured $59 billion in temporary debt financing from Wall Street banks, which it plans to replace with a mix of bonds, term loans, and a revolving credit facility. The entertainment giant plans to issue up to $25 billion in bonds, $20 billion in delayed-draw term loans, and a $5 billion revolving credit facility. Some of this debt will likely be paid down with cash flow generated by the company's operations. The total debt load could swell even further if Paramount Skydance Corp. succeeds in its hostile takeover bid for all of Warner Bros. Financial Details and Metrics Netflix's decision to take on significant debt is a departure from its previous strategy of focusing on generating cash flow to reduce its debt burden. The company's current debt-to-equity ratio is around 1.5, which is relatively low compared to its peers. However, the acquisition of Warner Bros. will significantly increase this ratio, potentially putting pressure on the company's credit rating. Market Impact and Context The streaming industry has undergone significant changes in recent years, with Netflix emerging as a dominant player. The company's decision to take on debt to fund its acquisition of Warner Bros. reflects the intense competition in the industry and the need for scale to remain competitive. The acquisition of Warner Bros. will give Netflix access to a vast library of content, including popular franchises such as Harry Potter and Batman. Company/Industry Background Netflix's history is marked by a period of rapid growth and debt accumulation. The company went public in 2002 and quickly expanded its subscriber base, but it also took on significant debt to finance its expansion. By 2011, Netflix's debt-to-equity ratio had reached 3.5, prompting concerns about the company's creditworthiness. However, under the leadership of Reed Hastings, Netflix implemented a series of cost-cutting measures and focused on generating cash flow to reduce its debt burden. Future Outlook The acquisition of Warner Bros. will have significant implications for the streaming industry and the broader media landscape. Netflix's decision to take on debt to fund the acquisition reflects the intense competition in the industry and the need for scale to remain competitive. The company's ability to maintain its investment-grade status will depend on its ability to generate cash flow and manage its debt burden. In conclusion, Netflix's decision to rebuild its debt to fund the acquisition of Warner Bros. reflects the company's commitment to growth and expansion. While the move may raise concerns about the company's creditworthiness, it also reflects the intense competition in the streaming industry and the need for scale to remain competitive.