Credit Update: Records Profits and Net Cash Stack Up Behind Block’s 5.7% to 6.2% USD Bonds

Data as of 30 September 2026
Source: Company data, iFAST compilations.

Net income tells a messier story, which is why we do not lean on it. Net income attributable to shareholders rose 22.5% YoY to USD 566 million (3Q25: USD 462 million), but this included a USD 229.7 million gain from marking Block's bitcoin holdings to market (3Q25: USD 59.6 million). That paper gain made up more than a third of pre-tax income of USD 612.5 million and could easily reverse. As bondholders, we therefore focus on adjusted EBITDA; on that metric, we are pleased with the increasing core profitability displayed by Block over the past four quarters, supporting its debt-servicing capacity.

Both Ecosystems Grew, With Lending Still Doing the Heavy Lifting

Cash App gross profit rose 27% YoY to USD 2.1 billion. Monthly transacting actives reached a new high of 60 million, while primary banking actives (customers using Cash App as their main bank account) grew 13% YoY to 9.4 million. As we noted previously, these customers generate 10x the gross profit of users who only send peer-to-peer payments, so their growth should support both earnings and margins. Lending again did much of the work, with consumer lending originations up 40% YoY to USD 19.0 billion, led by Cash App Borrow and Afterpay Post-Purchase.

Square gross profit rose 14% YoY to USD 1.2 billion, matching growth in gross payment volume (GPV) to USD 76.4 billion, the fastest pace since 1Q23. This matters because merchant payments are less exposed to consumer credit than Cash App lending, so a faster-growing Square improves the quality of Block's earnings. The seller base is also shifting upmarket, with mid-market sellers (over USD 0.5 million in annualised GPV) again growing fastest as Block pushes into larger chains. In our view, larger sellers tend to be more resilient in a downturn, which should make Square’s volumes steadier.

Building on this, Neighbourhoods, Block’s loyalty and rewards network, is starting to link the two ecosystems. It connects Square sellers with Cash App users, and sellers on it now represent nearly USD 5.0 billion in annualised GPV, almost 5x June’s level. Management credits it as a key driver of Cash App, reaching 60 million monthly actives. That said, it is still early, and we would watch whether these new users stay active.

Crucially for bondholders, the fast-lending growth has not yet shown up as weaker loan quality. Management said that "Borrow risk loss rates remained healthy” and that it expects "YoY growth in transaction, loan, and consumer receivable losses to moderate further in the fourth quarter." It also noted that "every annual Square loan cohort has performed in line with or better than our 4% loss target." We would qualify this, however. Cash App serves many lower-credit customers, and management plans to raise Borrow limits again, so we will watch whether loss rates hold as limits rise.

Cash Flow Remains Healthy, further Strengthening Block’s Net Cash Pile

OCF fell 30.0% YoY to USD 1.0 billion (3Q25: USD 1.5 billion), and after USD 44 million of capex, FCF fell 30.6% YoY to USD 972 million. We would not read this as weakness, as 3Q25 was an unusually strong quarter that alone made up more than half of FY25 OCF. In 2026, OCF held steady at about USD 1.0 billion each quarter (1Q26: USD 966 million; 2Q26: USD 1.0 billion). Cash conversion (FCF / adjusted EBITDA) was 79% in 3Q26 (2Q26: 83%), close to 80% on a TTM basis, whereas 3Q25’s 168% was well above normal.

Liquidity strengthened further. As of 30 September 2026, unrestricted cash and short-term investments stood at USD 8.2 billion (2Q26: USD 6.7 billion). With the undrawn USD 900 million revolving credit facility, total available liquidity stands at USD 9.1 billion. Against USD 5.7 billion of borrowings, Block's net cash position more than doubled to USD 2.5 billion (2Q26: USD 1.0 billion). Even after adjusting for the net payment of about USD 764 million for its DOJ legal settlement, Block would still hold net cash of about USD 1.8 billion.

Gross leverage Fell Again and Coverage Ticked Up

With gross debt flat at USD 5.7 billion and TTM adjusted EBITDA up to USD 4.3 billion, gross leverage (gross debt / TTM adjusted EBITDA) eased to 1.32x compared to 2Q26’s 1.45x (see Table 1 below). Interest coverage (TTM adjusted EBITDA / TTM net interest expense) edged up to 20.6x (2Q26: 20.0x), as quarterly net interest expense fell to USD 48.1 million (2Q26: USD 55.7 million), likely helped by the notes repaid in 2Q26.

On balance, we expect leverage to keep falling and coverage to build from about 20x, as adjusted EBITDA grows. Management’s guidance for 30% growth in adjusted operating income in 2027 supports this view. A larger-than-expected DOJ payment or a return to large share buybacks, which totalled USD 700.9 million in 1H26 but paused in 3Q26, could see leverage pickup. That said, with a healthy net cash balance, we do not expect any material worsening of Block’s credit profile.

Table 1: Leverage Keeps Falling, With Comfortable Coverage

Recommendations

Overall, we think Block’s credit profile remains solid and continues to improve, given record core earnings, a growing net cash position and healthy coverage. We continue to think adjusted EBITDA and cash flows should trend higher as Cash App and Square deepen their integration. That said, we continue to highlight the risks of rising lending losses should the US consumer weaken. However, we believe Block’s net cash position and coverage of about 20.6x should not result in a material impairment of its credit standing.

Block’s outstanding bonds trade at a yield-to-worst range of 5.74% to 6.29%, with expected tenors ranging from 0.51 years to 6.77 years (see Table 2 below). Against comparable US Treasuries, these issues provide a yield spread of 108bps to 154 bps. When compared to close industry peers Fiserv and PayPal, Block’s bonds provide a yield pickup of 3bp to 79bp for similar tenors. We recommend the XYZ 6.500% 15May2032 Corp (USD) issue as it offers the widest pickup and the highest coupon. Note: Both Fiserv (BBB by S&P) and PayPal (A-) have higher credit ratings than Block.

Investors looking for higher yields from an issuer that is displaying an improvement in credit profile can consider these medium-tenor bonds from Block.

Table 2: Block's USD Bonds Against Payments Peers