Rackspace refinancing nearly $2.9B of debt
San Antonio cloud-computing company Rackspace Technology Inc. is taking advantage of low interest rates and refinancing nearly $2.9 billion in debt.
The company outlined the plan in a Securities and Exchange Commission filing on Tuesday.
Rackspace is looking to use proceeds from a new $2.2 billion term loan, along with an additional $650 million in debt, “to repay all borrowings outstanding under the Company’s existing term loan facility,” according to the filing.
The firm incurred around $3.5 billion in debt at roughly 8 percent interest in its 2016 leverage buyout by Apollo Global Management, according to Karan Bhanot, finance department chairman and professor at University of Texas at San Antonio.
“A lot of that debt is still there because they just recently went public a few months back,” he said. “So it makes a lot of sense for them to reduce the cost of the financing.”
Rackspace returned to the stock market in August, with an initial public offering on the Nasdaq Global Select Market.
Bhanot said the company was paying up to $70 million annually in interest, sometimes more, so it makes sense to “shuffle out their high-cost borrowing”
“Some of it is upwards of 8 percent and current rates are much lower, indeed they are almost half of that,” he said.
The move could help Rackspace free up cash flow to hire and expand.
“It’s good for the city, it’s good
for them, and I think all around it’s a good thing,” Bhanot said.
The news came on the same day that Timothy Horan, an analyst at the securities brokerage firm Oppenheimer, began coverage of Rackspace with a favorable rating.
New York-based Apollo
Global Management, one of the world’s largest private equity firms, owns a majority of Rackspace shares. On Monday, Apollo announced that CEO Leon Black will step down after a legal review discovered he had paid Jeffrey Epstein $158 million between 2012 and 2017.
Rackspace is scheduled to release its fourth-quarter results on Feb. 18.
The company’s shares
jumped nearly 16 percent on Tuesday to close at $23.07.
Rackspace declined to elaborate on the SEC filing.