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Rackspace Technology is making moves to reduce its obligations on high-interest debts, according to a statement issued on the Globenews Wire.
The Windcrest-based managed cloud services company said Wednesday it will offer to buy back up to $600 million of the $1.12 billion outstanding bond debt garnered from senior debt, which is debt prioritized for repayment.
According to the company’s amended S-1 form filed with the SEC in July, as of March 31, Rackspace had $3.9 billion in outstanding debt, $3 billion of which it attributes to being acquired by Apollo Global Management in 2016.
Rackspace is offering to buy shares back from holders at $1,027.50, plus an early-sell payment of $30, for every $1,000 of stock. This tender offer will expire on Sept. 9.
Rackspace Technology raised just over $700 million from its initial public offering during its Nasdaq debut last week, but its stock plunged almost 20 percent before opening.
Rackspace stated in the S-1 form it planned to reuse a portion of its IPO to pay back $600 million of its senior debt and related fees.
“Assuming that we redeem $600 million aggregate principal amount … we would use approximately $625.9 million of the net proceeds from this offering for such redemption,” Rackspace stated in the filing, which also left the door open for tender offers.
Companies often propose tender offers in order to refinance their outstanding loans at lower interest rates, or to regain the majority of shares and garner more control of their company, said Steven Jacobs, a legal partner at Jackson Walker LLP in San Antonio in the corporate and securities practice group. Neither Jacobs nor his firm has business ties to Rackspace.
In the S-1, Rackspace also stated that the timing in which they may retire or repurchase its debt depends on market conditions, and current low interest rates make it favorable for Rackspace to do that now, Jacobs said.
“[Rackspace] got a bunch of cash flow from their IPO, and now they want to use that to clean up their balance sheet,” Jacobs said. “You can see from their S-1 this was a pre-planned move, they were just going to find the right timing.”