Moody’s cuts Rackspace debt, view negative

Moody's Investors Service said it confirmed Rackspace Hosting, Inc.'s B1 corporate family rating following the review of the ratings related to Rackspace's pending acquisition of DataPipe Inc.

To finance the acquisition, including repayment of existing debt at DataPipe, Rackspace will issue an $800 million incremental senior secured term loan B and use cash from its balance sheet.

The agency also confirmed the company's B1-PD probability of default rating and B3 senior unsecured rating.

Moody's downgraded the senior secured rating to Ba3 from Ba2 as a result of the incremental first-lien debt.

The outlook was changed to negative due to Rackspace’s weak revenue trends, intense competitive pressure and a more aggressive financial policy than Moody's initial assessment post-LBO, evidenced by increased frequency of M&A.

These actions conclude the review for downgrade that was initiated on Sept. 11.

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