Netflix has announced today how they plan to fund their upcoming creative endeavors… they're going to offer $1 billion dollars in long-term debt. Yes, that's billion with a "B". The current favorable interest rate was one of the draws of a plan that basically uses the sale long-term debt to fund their original content expansion. The budgets for the original content will have the interest costs built into them.
The downside to this plan is that the ratings company Standard & Poor's downgraded Netflix's credit rating after the announcement from BB Minus to B Plus. This tells potential debt buyers that the company comes at a higher risk. S&P said Monday: "The downgrade and negative outlook reflects our expectation that Netflix will incur significant discretionary cash-flow deficits over the next several years and that debt leverage will be high during that time."
In a letter from Netflix CEO Reed Hastings and CFO David Wells, shareholders were told that the company plans to make 320 hours of original content this year, three times what the produced last year. The company already has $900 Million in long term debt raised over the last two years.
How well this plan works may hinge greatly on the reception of the Marvel series Daredevil, AKA Jessica Jones, Luke Cage, Iron Fist and The Defenders. As some of the highest profile content currently in the works, the company can't really afford for these to bomb especially with Amazon making a big push in the market at the same time.