Business News Deals Digital

Spotify raises a billion in debt finance

By | Published on Wednesday 30 March 2016


Did you hear the one about the streaming music service that went out one day to borrow half a billion in cash and returned with a billion in its pockets? No? Ah, it’s a goodun. You missed out. You should have been there. Perhaps Daniel Ek will say something about it in the middle of his next tweet on American/Cuban diplomatic relations.

So, yes, Spotify has raised a neat billion. Although, as previously reported, this time the streaming service’s big cash injection comes via debt financing rather than flogging off more stock. But, as expected, it’s convertible debt, which means that – in addition to paying interest on the loaned monies – if and when Spotify floats on a stock exchange, the money lenders can convert their loans into equity at a healthy discount on the IPO rate.

According to the Wall Street Journal’s sources, the people and institutions providing this billion dollar loan, which include TPG, Dragoneer Investment Group and clients of Goldman Sachs, will get a 20% discount if they convert the debt to stock on IPO. That discount will also go up the longer it takes Spotify to float, by 2.5% every six months after a one year period. Though, sources say, the streaming music firm has indicated it will IPO within the next two years, so those discounts shouldn’t top 25%.

Still, those are pretty damn good terms from the money men. And the billion dollars will come in very useful for Spotify as it continues its aggressive loss-leading growth around the world, enabling further expansion into new territories, more above-the-line marketing efforts, and probably a few strategic acquisitions along the way.

Some of that growth is about building hype ahead of that IPO, of course, to ensure a maximum pay-day for the firm’s big money backers and lenders. Though the service also needs greater scale to become viable long-term (by which, we mean, many more premium users), and, with streaming becoming the record industry’s single biggest revenue stream, the long-term viability of the decent-revenue-generating paid-for streaming services is of ever higher concern for the wider music community too.