Streaming giant Netflix (NFLX) has trimmed down its $59 billion bridge loan for its $72 billion acquisition of Warner Bros. Discovery (WBD) by securing $25 billion in new forms of debt generally considered cheaper. NFLX rose fractionally early Monday as the update became public.
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Bridge loans are short-term debt, often under 12 months, and are designed as emergency or backstop funding that attracts very high upfront fees. However, a regulatory document filed on Monday shows that Netflix has obtained $5 billion in revolving credit and two $10 billion delayed-draw term loans, pruning its bridge loan to $34 billion.
What’s the Big Deal?
Both forms of credit are generally considered to be cheaper than bridge loans in terms of interest rates and overall cost of borrowing. While the former gives Netflix the ability to access up to $5 billion in multiple drawdowns, the latter allows access to $20 billion in committed capital at various stages, with interest only on the drawn amounts.
Netflix and entertainment giant Paramount Skydance (PSKY) have been engaging in a tussle to take over Warner Bros., a Hollywood darling that is more than 100 years old.
Netflix’s Offer Sparks Debt Concerns
While Paramount recently upped its $108.4 billion bid for the entirety of Warner Bros., describing it as superior, Warner Bros.’s board opted, for the second time, for Netflix’s offer. Unlike Paramount, Netflix is seeking to acquire only Warner Bros.’ movie and TV studios as well as streaming platform HBO Max.
Netflix secured $59 billion in a bridge loan to back its cash-and-stock offer, which comes with an equity value of $72 billion and a total enterprise value of $82.7 billion, including Warner Bros.’s debt.
However, Netflix’s massive $27.75-per-share deal has triggered price target cuts among Wall Street analysts, who pointed to investor concerns about the streaming giant’s “extremely expensive” debt profile and “long-term headwinds.” Netflix has stressed that its acquisition push “is about growth.”
Is NFLX Stock a Good Buy?
Across Wall Street, Netflix’s shares currently carry a Moderate Buy consensus rating. This is based on 26 Buys, nine Holds, and two Sells issued by 37 analysts over the past three months.
However, the average NFLX price target of $132.59 implies over 40% growth potential from current trading levels.
