Rackspace Draws $150 Million From Credit Line

Rackspace (RAX) has borrowed an additional $150 million on its revolving line of credit, citing "uncertain economic conditions in the credit and bank markets."

Managed hosting company Rackspace (RAX) said Friday that it has borrowed an additional $150 million on its revolving line of credit, describing the move as "a prudent measure based on the uncertain economic conditions in the credit and bank markets."

As a private company, Rackspace built itself into one of the leading brands in managed hosting, with more than 33,000 customers and 2007 revenues of $362 million. Rackspace went public in August in a widely-watched IPO. The company's shares began trading at $12.50, but soon headed lower and are priced at $6.55 a share this morning.

Rackspace had previously borrowed $50 million on its credit line, which is backed by Comerica Bank, JPMorgan Chase, Wachovia Bank, Bank of America and The Frost National Bank. The company has another $44 million "available and committed" on the credit line.

By moving to draw down the credit line now, Rackspace averts any possibility that further turmoil in the banking sector might constrict its access to the credit line at a later date.

"We continue to maintain a strong capital position with the liquidity we need to grow our business over the long term," said Bruce Knooihuizen, CFO of Rackspace Hosting. "Including operating cash, we now have more than $250 million in cash, cash equivalents and short-term investments.” Any funds classified as "non-operating" are invested in money market funds that invest exclusively in high-quality, short-term U.S. government securities, Rackspace said.

At the end of the third quarter of 2008, Rackspace had $200 million outstanding on its revolving line of credit. Fifty million dollars of outstanding borrowings have been swapped into a fixed rate of 4.135% and $150 million have been borrowed on a three months LIBOR basis at 3.762%.

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