Cannell Capital Sells Equity After 321% Rally, Warns of $3.3B Debt Maturity
Cannell Capital LLC has sold all Rackspace Technology, Inc. equity after a 321% stock rally and shifted its holdings into credit securities. The firm warns of a looming $3.3 billion debt load maturing in 14 months against projected $300 million free cash flow and debt yields at 78%.
1. Equity Sale and Credit Shift
In March, Cannell Capital LLC sold its Rackspace Technology, Inc. equity after a 321% price run and moved its positions into Rackspace credit securities. The firm cited stronger upside in debt given credit yields and risks associated with the company’s capital structure.
2. Debt Maturity and Yield Concerns
The letter highlights that $3.3 billion of Rackspace debt will mature within 14 months and currently trades with a 78% yield to maturity. These figures underscore significant refinancing challenges and growing financial strain on the balance sheet.
3. Free Cash Flow Projections
Cannell Capital notes Rackspace’s capacity to generate roughly $300 million in free cash flow over the next two years, a sum insufficient to cover pending maturities. The firm questions the absence of an at-the-market equity offering or alternative recapitalization strategy.
4. Call for Creditor Committee Seat
The investment firm expresses interest in joining Rackspace’s creditor committee, referencing its acquisition of unsecured debt securities. It urges management to present a clear recapitalization plan to protect creditor interests.