S&P snips Rackspace

S&P said it lowered its ratings on Rackspace Technology Global Inc. and its senior secured debt facility to CCC+ from B-. The recovery rating remains a 3. However, the agency revised the recovery rating on the company's unsecured debt to 6 from 5 based on the view that in a simulated default, the unsecured lenders would recover less than what was previously expected. S&P revised the outlook to negative from stable.

Rackspace's gross and EBITDA margins hit new record lows during the first quarter of 2023, with further declines projected in the second quarter, S&P said.

“On a generally accepted accounting principles (GAAP) basis, gross margins declined to 22.4% during the first quarter, down about 670 basis points (bps) year over year. Margins are being pressured by the company's declining private cloud revenues and the significant mix of low-margin infrastructure deals within public cloud revenues,” S&P said in a statement.

The outlook reflects the elevated risk of a distressed exchange from weakening conditions, the agency warned.

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