Tech bigwigs Apple Inc and Netflix are mulling to offer corporate bonds of USD 5 billion and USD 1 billion respectively in a bid to quickly increase the capital for share buybacks and several other expenses.
As the interest rates are so low globally, the two firms can utilize the corporate bond offerings in order to raise the funds at relatively cheaper rates instead of spending cash on hand.
The shares of both technology companies declined nearly 1.5 percent at the time of opening of the market. However, they both recovered by noon. While Apple resumed its USD 118 opening price, Netflix rallied to USD 442.33, which is up slightly from its opening price of USD 439.90.
For its part, Apple holds USD 178 billion in cash and only two years ago sold USD 17 billion, which was the largest corporate bond sale in history at that time. It was, however, surpassed later in the year 2013 by USD 49 billion bonds offering by US wireless carrier Verizon. Overall, the Cupertino-based company has issued USD 32.5 billion of bonds in its three offerings since April 2013.
One the other hand, Netflix finished at USD 1.6 billion in the fourth quarter in cash on hand.
Addressing the shareholders in the company’s fourth quarter earnings note, Netflix CEO Reed Hastings said that they would raise funds in order to help pay for the growing costs of original content creation.
“Given we are investing faster in content (this Q1 will show a step up in cash use with all the original projects launching in the quarter) and the current favorable interest rate environment, we intend to raise at least a billion dollars, pending market conditions, of additional long-term debt in a similar manner to last year,” Hastings said while adding, “As long as the maturities are spread out and the interest cost is developed into our content budgets, it is believed that the long-term debt is the best way for the streaming video provider to finance the production of content.”
The company is planning to launch 320 hours of new and returning original series like Orange is the New Black and House of Cards, along with films such as a sequel to Crouching Tiger, Hidden Dragon on August 29, stand-up comedy specials and documentaries.
While the investors are expected to flock to the bonds thinking that their yields may be outpacing current Treasury rates, the Wall Street has some reservations about Netflix’s strength as its stock has been lowered to junk rating levels.
Standard & Poors has awarded a ‘negative’ outlook for the next three years of the company; it cut corporate credit rating of Netflix from ‘BB-‘ to ‘B+’ and also awarded the same ‘B+’ rating to the proposed bonds and its existing unsecured notes.