S&P downgrades Rackspace

S&P said it lowered its corporate credit rating on Rackspace Hosting Inc. to B+ from BB- and removed it from CreditWatch, where it was placed with negative implications on Sept. 11.

The outlook is stable.

At the same time, the agency lowered the issue-level rating on the company's senior secured revolving credit facility and term loan to BB- from BB+ and revised the recovery rating to 2 from 1, indicating an expectation for substantial (70%-90%; rounded estimate: 80%) recovery for lenders in the event of a payment default.

S&P also lowered the issue-level rating on the company's senior unsecured notes to B from B+. The recovery rating remains 5, indicating an expectation for modest (10%-30%; rounded estimate: 15%) recovery.

The agency also removed all issue-level ratings from CreditWatch.

S&P said the downgrade reflects a view that the recent acquisitions of Datapipe and TriCore reflect a shift in the company's financial policy, which historically focused on organic growth.

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