Moody’s has upgraded Netflix’s corporate family rating (CFR) and unsecured debt rating by two notches to Ba1 from Ba3 while maintaining a positive outlook. The new rating, which is just one notch short of the investment grade, comes on the back of the company’s rapidly improving financials due to its increasing subscriber base during the Covid lockdowns. Netflix expanded its subscriber base to ~204mn by the end of 2020, which boosted its consolidated revenues of ~$25bnThe improved user base helped Netflix generate free cash flows (FCF) of ~$1.9bn in 2020. The FCF along with its ~$8.2bn bond issuance has improved the company’s liquidity and reduced the leverage to ~3.7x at the end of 2020. The leverage is expected to further reduce to 3x by the end of this year. The rating agency also expects the growth in subscriptions seen during the pandemic related lockdowns to continue through 2021. Neil Begley, Moody’s Senior Vice President stated, “The performance of Netflix in the second half of 2020 materially exceeded our forecasts at the time we placed a positive outlook on the ratings a year ago,” and added that “We forecast the company will achieve low to mid 20% margins in 2022, breakeven cash flows by the end of 2021 or early 2022 and sustained free cash flow generation for full fiscal year 2022 rather than 2023.” The video streaming company had also received an upgrade to BB+ by S&P in January with a positive outlook. 

Netflix’s 5.75% 2024s and 3.625% 2030s were down ~0.1 to trade at 111.85 and 117.64 respectively.
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