Moody’s gives B1 to Netflix bonds

Moody's Investors Service said it assigned a B1 (LGD4) rating to Netflix, Inc.'s new senior unsecured bonds of benchmark size.

Proceeds will be used for general corporate purposes and to finance the company's business plan, including increasing investments in original programming and expansion in new international territories.

The new senior unsecured notes will rank pari passu with the company's existing unsecured debt and non-debt obligations at Netflix's operating subsidiaries.

The agency estimates that pro forma for the new notes issuance, debt-to-EBITDA (incorporating Moody's standard adjustments) as of Sept. 30 will be in the 9.5 times to 10 times range, which exceeds the 6 times sustained leverage threshold for the B1 rating.

However, based on the company's solid growth trajectory supported by consistent subscriber gains and expectations for positive contributions from international markets in the next couple of years, Moody’s anticipate that leverage will decline rapidly (starting in 2017) to well under 5 times by the end of 2018 and the company will be strongly positioned in its rating category.

As a result, the uptick in gross debt and adjusted leverage following the new bonds issuance will not impact the B1 corporate family rating, Ba3-PD probability of default rating or B1 senior unsecured debt rating. The SGL-1 speculative grade liquidity rating remains unchanged.

The outlook is stable.

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