Netflix Inc. has lined up $59 billion of financing from Wall Street banks to help support its planned $72 billion acquisition of Warner Bros. Discovery Inc., which would make it one of the largest ever loans of its kind.
Wells Fargo & Co., BNP Paribas SA and HSBC Plc are providing the unsecured bridge loan, according to a statement and filing on Friday. Wells Fargo’s $29.5 billion portion of the loan commitment represents the biggest by a single bank for an investment-grade bridge facility at a time when Wall Street is looking to earn lucrative fees tied to a long-awaited revival in acquisitions.
Such loans are a type of financing that is typically replaced with more permanent debt like corporate bonds. The bridge is expected to be eventually replaced with up to $25 billion of bonds, which are sold to institutional investors, plus $20 billion of delayed-draw term loans and a $5 billion revolving credit facility, both of which are typically held by banks.
The bonds would likely be rated investment grade since Netflix carries an A3 debt grade by Moody’s Ratings and A by S&P Global Ratings. Netflix relied on the junk-bond market for years in the early days of its business, but was upgraded to blue-chip status in 2023, giving the streaming giant access to cheaper financing and a deeper pool of investors.
A loan of $59 billion would rank among the biggest of its type. Anheuser-Busch InBev SA obtained $75 billion of loans to back its acquisition of SABMiller Plc in 2015, the largest bridge financing on record, according to data compiled by Bloomberg.
Under the deal announced Friday, Warner Bros. shareholders will receive $27.75 a share in cash and stock in Netflix for an enterprise value of about $82.7 billion.
M&A Debt Wave
Both banks and investors have been eagerly awaiting the return of mega acquisitions in investment-grade and high-yield rated transactions. In the junk-rated space, JPMorgan Chase & Co. made waves in September by committing $20 billion of financing for the take-private of Electronic Arts Inc., the largest debt commitment ever made by a single bank for a leveraged buyout.
Bridge loans are a crucial step for banks in building relationships with companies to win higher-paying mandates down the road. One or a small group of banks typically provide the initial bridge loan, and then bring in other banks to spread the risk once the acquisition is publicly announced.
Eventually, those loans are replaced with bonds sold to institutional investors. Netflix cast off its junk status in March of 2023, and has been lifted again by both ratings agencies. Adding $59 billion to its debt pile could prompt Moody’s and S&P to reassess their grades.
“Post-close we’re committed to maintaining a healthy balance sheet and our solid investment grade credit ratings,” said Netflix’s Chief Financial Officer Spencer Neumann on a Friday call. “We expect pro forma leverage to be elevated at closing, with a clear plan to bring that back under rating agency targets for our current ratings within two years after closing. While we’ll prioritize deleveraging during this period, we also expect to continue share repurchases.”
Netflix expects to realize $2 billion to $3 billion of annual cost savings by the third year after the deal closes, he said.
Warner Bros. put itself up for sale in October after receiving interest from several parties. In addition to Netflix, the company was pursued by Paramount Skydance Corp. and Comcast Corp. Warner Bros. entered into exclusive deal talks with Netflix on Thursday, Blooomberg reported.
The bidding got contentious, with Paramount accusing Warner Bros. of operating an unfair process that favored Netflix. Netflix agreed to pay Warner Bros. a termination fee of $5.8 billion if the deal falls apart or fails to get regulatory approval.
