Rackspace private refinancing wraps, public offer coming soon

Chicago, March 12 – Rackspace Technology Global Inc. announced a comprehensive refinancing plan including transactions already negotiated through a private exchange and plans for a public exchange open to outstanding lenders and first-lien noteholders, according to an 8-K filing with the Securities and Exchange Commission.

Private exchange, new money

The private exchange was with holders of 72% of the company’s first-lien term loans from a credit agreement from November 2016 and more than 64% of its 3˝% first-priority senior secured notes due 2028 (issued by Rackspace Technology Global, Inc.) and covered all of its revolving credit facility commitments.

The exchange eliminated $375 million of debt, and the company received $275 million of new money financing.

More specifically, Rackspace exchanged or purchased $1,588,800,000 of term loans and $331.4 million of the existing notes.

The company also repurchased $69.3 million of its 5 3/8% senior notes due 2028.

In the exchange, the company borrowed $1,312,000,000 of new first-lien second-out term loans and issued $267.3 million of new first-lien second-out secured notes due 2028. Rackspace Finance Holdings, LLC, a new subsidiary of the company, is the new issuer/borrower.

For the new money financing, the company borrowed $275 million of new first-lien first-out senior secured term loans.

The maturities on the revolver and other participating senior debt facilities were extended to May 2028.

Exchange loan details

Details on the new $1,312,000,000 first-lien loan were available in the filing.

Interest will be at SOFR plus 275 basis points, subject to a 0.75% SOFR floor. There will be a credit spread adjustment.

The maturity date will be May 15, 2028.

Amortization starts March 31, 2024 with 1% of the principal amount paid in an annual amount and the balance paid at maturity.

There is make-whole protection if Rackspace repays the loan before Sept. 12, 2025. There is no prepayment penalty after that date.

Security comes from the company’s capital stock, with the new borrower directly or indirectly owning substantially all Rackspace assets.

Negative covenants place limitations on the ability of the borrow and subsidiary guarantors to: incur additional debt or issue certain preferred shares; create liens on certain assets; make certain loans or investments (including acquisitions); pay dividends on or make distributions in respect of their capital stock or make other restricted payments; consolidate, merge, sell or otherwise dispose of all or substantially all of their assets; sell assets; enter into certain transactions with their affiliates; enter into sale-leaseback transactions; change their lines of business; restrict dividends from their subsidiaries or restrict liens; change their fiscal year; and modify the terms of certain debt or organizational agreements.

Citibank, NA is listed as the administrative agent and collateral agent.

New money loan

The $275 million new money loan was signed March 12.

Interest will be at SOFR plus 625 bps, issued with a discount at 99.

The maturity date will also be May 15, 2028.

Annual amortization payments are similarly at 1% with the balance due at maturity.

Prepayment will include a make-whole premium before Sept. 12, 2025. Between Sept. 12, 2025 and Sept. 12, 2027, repayment will be at 103. Repayment will be at 101 for the following and then there is no penalty after Sept. 12, 2027.

The same collateral secures the new loan.

The negative covenants are substantially similar to the exchange loan.

Revolver

The new $375 million revolver is structured as a first-out first-lien facility.

The new facility replaces in full the company’s prior facility.

Interest will initially be at SOFR plus 300 bps, with a 1% SOFR floor. The commitment fee is 50 bps initially.

After June 30, the margins for interest and the commitment fee will be based on a first-lien leverage-based pricing grid.

The maturity date is again May 15, 2028.

Any prepayments will be without penalty.

The collateral is the same as the term loans.

The covenants are substantially similar to the term loans.

In addition, the revolver requires the borrower to comply with a maximum super-priority net senior secured leverage ratio of 5x starting March 31. The testing threshold will be satisfied if the aggregate amount of funded loans and issued letters of credit under the revolver exceeds 35% the then-outstanding commitments.

New notes

The $267.3 million of new secured notes carry a 3˝% interest rate and mature on May 15, 2028.

The collateral is the same as the credit facilities.

The notes will be redeemable with a make-whole premium before Sept. 12, 2025 and then at par after that date.

The new secured notes indenture contains covenants that, among other things, limit the ability of the new borrower and its subsidiaries to incur certain additional debt, incur certain liens securing debt, pay certain dividends or make other restricted payments, make certain investments, make certain asset sales and enter into certain transactions with affiliates.

Public offer

The company plans to launch a public debt exchange offer to all outstanding lenders and first-lien noteholders.

The public exchange will cover the $182.3 million outstanding of the 3˝% senior secured notes due 2028 and the $592.3 million of the outstanding existing term loans.

The company plans to issue $418.8 million of new term loans and $127.6 million of new secured notes.

Investors will be offered new term loans or new first-lien notes, as applicable, with more security, tighter covenants and other restrictions.

The company aims to eliminate more than $600 million in net and reduce its net annual interest expense by about $13 million.

Summary

If all participate in the public offer, Rackspace will have raised $575 million of new capital over the past year and reduced debt by over $900 million. The company’s net annual interest expense will be lowered by about $40 million.

Liquidity will be over $700 million, with continued access to the amended and extended $375 million revolver.

The company included in its filing the investor presentation slide deck from January that it used in connection with the private exchange.

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 adviser in the transaction. Latham & Watkins LLP served as legal counsel to the special committee of the company’s board of directors.

Rackspace is a Windcrest, Tex.-based end-to-end multi-cloud technology services provider.

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