“Netflix’s credit profile really turned around,” said Stephen Flynn, an analyst covering telecom and media debt at Bloomberg Intelligence. “They’ve come a long way from high yield.”
According to Bloomberg Intelligence calculations, Netflix would have about $75 billion in debt if the acquisition goes through based on the latest terms, up from about $15 billion now. But even with much higher debt, the new company is expected next year to generate around $20.4 billion of earnings available to pay interest, known as earnings before interest, taxes, depreciation and amortization.
At that level, net debt would equal about 3.7 times Ebitda. Then in 2027, earnings would probably grow and bring the leverage ratio down to about mid-2x range, according to BI, a more typical level for an investment-grade company.
“Overall, Netflix is a very, very strong credit,” BI’s Flynn said. “They’ve got growing revenue, growing Ebitda, and growing free cash flow, so the pro-forma company can de-lever quite quickly.”
Netflix’s swelling debt load recalls the company’s heavy borrowing before the pandemic, with a key difference: the streaming giant is much stronger now. Netflix first started selling junk bonds in 2009 when it was transitioning from mainly renting DVDs through the mail into a streaming company. Over the following years its debt load climbed to as high as $18.5 billion as it gained more rights to stream movies and television programs, and started producing hits like “House of Cards” and “Stranger Things.”
“Netflix has earned the right to take on an acquisition of this size,” said Jim Fitzpatrick, head of US investment-grade credit research at Allspring Global. “Their balance sheet has plenty of capacity to accommodate something like this, even if they have to up their bid.”
