00:00Emily, how much debt would Netflix be taking on to get this deal done, and what does its debt profile look like if it loads up on a lot more?
00:07So right now, Bloomberg Intelligence estimates that they have about $15 billion in debt on the balance sheet.
00:13That's going to go up to about $75 billion with the current terms of the deal.
00:18But we do know that there's a hostile takeover bid as well.
00:21So if they have to up their bid to compete with Paramount, or even if regulators move to block the deal, they have to pay that breakup fee.
00:30So there's still a lot of moving parts here.
00:32But what we do know is that they're currently investment grade.
00:35They built their business tapping into the junk bond market.
00:39They were high yield, and they've really turned the credit profile around.
00:42So this is kind of a story of a company that was, well, not a fallen angel, the opposite of a fallen angel here.
00:49It successfully moved itself out of high yield.
00:53Now it's IG.
00:54It cut back on debt during the pandemic.
00:56And now it's in a position to lever up again, and it can really tap into the market now.
01:00Does it also say something about the broader market, the fact that you can have Netflix do this deal via help from the bond markets?
01:06You can have one of the biggest take privates in EA tapping $20 billion, led by JP Morgan.
01:12It doesn't necessarily feel like financial conditions are tight.
01:15It feels like funding markets are incredibly easy right now.
01:17Yeah, I would agree with that, Dani.
01:19I mean, when I spoke to different credit analysts, they all said that basically Netflix's credit rating is very strong.
01:25And it does speak to the fact that, especially in IG, there's just a lot of capital and a deep pool of liquidity now to fund these deals.
01:35Morgan Stanley did say that we could see Netflix's credit rating move down to triple B, but they would still be investment grade.
01:42So they said actually sell some of the Netflix bonds here on this idea that Netflix will have to raise debt.
01:49But if you do look at that cash flow chart here, you can really see the turnaround in this company's balance sheet.
01:55They were burning through cash, and it paid off.
01:58Now they generate about $2 billion in free cash flow every quarter, and it's enabled them again to be able to lever up like this to fund this deal.
Be the first to comment