S&P changes Rackspace view to negative

S&P said it revised its outlook on Rackspace Hosting Inc. to negative from stable.

At the same time, the agency affirmed the B+ issuer credit rating and the BB- issue-level rating on the company's senior secured revolving credit facility and term loan. The recovery rating remains 2, indicating substantial (70%-90%; rounded estimate: 80%) recovery for lenders in the event of a payment default.

In addition, S&P affirmed the B issue-level rating on the company's senior unsecured notes. The recovery rating remains 5, indicating modest (10%-30%; rounded estimate 15%) recovery.

“The outlook revision reflects Rackspace's currently elevated leverage of about 6.5x and limited FOCF to debt of around 3% (as of June 30, 2018), both of which are weak for the current B+ rating,” the agency said in a news release.

“Greater than expected open sales capacity, and in our view, distractions from new management, have impaired new bookings and churn following recent acquisitions.”

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