Rackspace Technology Announces Refinancing Transactions, Significantly Reducing Debt and Securing New Money Investment
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Insights
The completion of a private debt exchange and the subsequent launch of a public exchange offer by Rackspace Technology are strategic financial maneuvers aimed at optimizing the company's capital structure. The reduction of $375 million in net debt and the procurement of $275 million in new financing will not only improve the balance sheet by increasing liquidity but will also reduce the company's leverage, making it more resilient to financial stressors. These actions are likely to be well-received by investors as they indicate a proactive approach to debt management and a commitment to financial stability.
Furthermore, the extension of debt maturities to May 2028 provides the company with a longer runway to execute its strategic initiatives without the immediate pressure of refinancing. The potential to reduce net debt by an additional $600 million and lower annual interest expenses by approximately $40 million, assuming full participation in the Public Exchange Offer, could significantly decrease the cost of capital and enhance the company's investment in growth areas such as hybrid, multicloud and AI solutions. These moves are indicative of a company strategically positioning itself for sustainable growth and improved financial performance.
Rackspace Technology's announcement reflects a broader trend in the tech industry where companies are increasingly seeking to strengthen their financial positions to better compete in dynamic markets. By reducing debt and extending maturities, Rackspace aims to enhance its competitiveness in the hybrid, multicloud and AI solutions space—a sector that is experiencing rapid growth and transformation. The additional liquidity can be pivotal for Rackspace to invest in research and development, expand its service offerings and potentially increase market share.
The technology sector is highly sensitive to changes in financial health and investor sentiment. Rackspace's strategic financial restructuring may lead to improved credit ratings and investor confidence, which in turn could positively impact its stock price. This initiative could also set a precedent for other companies within the industry, highlighting the importance of active capital management in driving long-term business growth and investor returns.
Through the lens of debt restructuring, Rackspace's approach is significant. The private exchange has allowed the company to negotiate directly with a majority of its creditors to improve its debt profile. This kind of transaction is often complex and requires careful navigation of legal and financial implications. The successful reduction of net debt and extension of maturities, coupled with the reception of new money, indicates a strong relationship between Rackspace and its creditors, which is an essential factor in any restructuring scenario.
The introduction of tighter covenants and other restrictions in the new terms suggests a mutual understanding of risk management between the company and its lenders. These revised terms are likely designed to protect the lenders' interests while providing the company with the flexibility needed to pursue its strategic objectives. The overall debt restructuring strategy adopted by Rackspace is a textbook example of how companies can effectively manage their liabilities to create a more favorable financial environment for growth and operational excellence.
Company to Receive
Company to Launch Public Exchange Offer to All Existing Term Loan Lenders and Secured Note Holders
SAN ANTONIO, March 12, 2024 (GLOBE NEWSWIRE) -- Rackspace Technology® (NASDAQ: RXT), (“Rackspace” or the “Company”), a leading end-to-end hybrid, multicloud, and AI solutions company, today announced that it has closed a private debt exchange (the “Private Exchange”) with certain of its creditors representing more than
Through the Private Exchange, Rackspace has eliminated more than
In connection with the transaction, the Company plans to launch a public debt exchange offer (the “Public Exchange Offer”) to all its outstanding lenders and first lien noteholders. The Public Exchange Offer will offer existing lenders and first lien noteholders new term loans or new first lien notes, as applicable, with an improved security position, tighter covenants, and other restrictions. Through full participation in the Public Exchange Offer, the Company has the opportunity to eliminate more than
These transactions represent another significant step forward in the Company’s capital structure evolution. Following the closing of the Public Exchange Offer and assuming full participation, Rackspace will have raised
“By both significantly reducing our debt and infusing new capital, this transaction strengthens Rackspace Technology’s financial position and enhances our ability to continue delivering value to our customers with industry-leading hybrid, multicloud and AI solutions,” said Amar Maletira, Chief Executive Officer of Rackspace Technology. “The confidence of our financial partners is an encouraging testament to the momentum we have achieved over the last year, and we look forward to accelerating execution of our strategic growth initiatives.”
There will be no change in Rackspace’s equity ownership as a result of the transaction, which significantly decreases the Company’s debt balance and reduces its interest expense.
Advisors
Paul, Weiss, Rifkind, Wharton & Garrison LLP served as legal counsel for the Company, PJT Partners LP served as investment banker for the Company, and C Street Advisory Group served as strategic communications advisor in the transaction. Latham & Watkins LLP served as legal counsel to the special committee of the Company’s board of directors.
About Rackspace Technology
Rackspace Technology is a leading end-to-end hybrid, multicloud, and AI solutions company. We design, build, and operate our customers’ cloud environments across all major technology platforms, irrespective of technology stack or deployment model. We partner with our customers at every stage of their cloud journey, enabling them to modernize applications, build new products, and adopt innovative technologies.
Important Information
This press release is for informational purposes only and does not constitute or form part of any offer or invitation to purchase or sell, or any solicitation of any offer to sell or purchase, notes or any other securities or debt instruments, and neither this press release nor any part of it, nor the fact of its release, shall form the basis of, or be relied on or in connection with, any contract therefor. The Public Exchange Offer for the Company’s existing first lien notes will be made only by and pursuant to the terms and conditions of a confidential offering memorandum that will only be made available to eligible holders of the Company’s existing first lien notes. The complete terms and conditions of the Public Exchange Offer for the Company’s existing first lien notes will be set forth in such confidential offering memorandum. The Public Exchange Offer for the Company’s existing term loans will be made only by and pursuant to the terms and conditions of an exchange agreement that will only be made available to holders of the Company’s existing term loans. The complete terms and conditions of the Public Exchange Offer for the Company’s existing term loans will be set forth in such exchange agreement. Neither the Company nor any of its affiliates takes any position or makes any recommendation as to whether or not eligible holders should participate in the Public Exchange Offer for the Company’s existing first lien notes or existing term loans once commenced.
Forward-Looking Statements
The Company has made statements in this press release that are forward-looking and therefore subject to risks and uncertainties. All statements, other than statements of historical fact, included in this press release are, or could be, “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995 and are made in reliance on the safe harbor protections provided thereunder. These forward-looking statements include statements related to the Private Exchange, the Public Exchange Offer, the New Money Financing, the anticipated benefits of the Private Exchange, the Public Exchange Offer and the New Money Financing, and the Company’s strategic initiatives, among other things. The Public Exchange Offer will be subject to customary closing conditions. Any forward-looking statement made in this press release speaks only as of the date on which it is made. The Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise. Forward-looking statements can be identified by various words such as “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions. These forward-looking statements are based on management’s current beliefs and assumptions and on information currently available to management. The Company cautions that these statements are subject to risks and uncertainties, many of which are outside of its control, and could cause future events or results to be materially different from those stated or implied in this press release, including among others, risk factors that are described in the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and other filings with the Securities and Exchange Commission, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained therein.
Media Contact
Natalie Silva, publicrelations@rackspace.com
Investor Relations Contact
Sagar Hebbar
ir@rackspace.com
FAQ
What strategic initiatives will Rackspace Technology advance with the $275 million new funding received?
How much net debt did Rackspace Technology eliminate through the private debt exchange?
What is the goal of the public debt exchange offer that Rackspace Technology plans to launch?
What is the total amount of new capital Rackspace Technology has raised over the past 12 months?
Who served as legal counsel for Rackspace Technology in the transaction?
