Rackspace talks $1.2 billion eight-year notes to yield in 8¾% area; pricing Tuesday

By Paul A. Harris

Portland, Ore., Oct. 25 – Rackspace Hosting Inc. talked its $1.2 billion offering of eight-year senior notes (//BB-) to yield in the 8¾% area, a trader said on Tuesday.

Official talk comes tight to early guidance in the low 9% area.

Books are closed, and the deal is set to price this afternoon.

Deutsche Bank Securities Inc., Citigroup Global Markets Inc., Barclays and RBC Capital Markets are leading the deal.

The notes, which are part of the financing for the buyout of the company by Apollo Global Management LLC, come with three years of call protection.

The bonds are backed by a $1.2 billion bridge loan that did not go out widely but was taken down by as few as 15 accounts, a buyside source added.

The financing also includes $2,225,000,000 of bank debt.

Apollo proposes to acquire Rackspace for $32.00 per share in cash. The transaction has a total value of $4.3 billion, which includes the assumption of $43 million of net cash.

Also, funds managed by Searchlight Capital Partners LP will make a strategic equity investment in the acquired company.

Closing is expected in the fourth quarter of 2016.

Rackspace is a San Antonio-based managed cloud company.

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