Sale of Receivables

9 Months Ended

Sep. 30, 2023

Transfers and Servicing [Abstract]

Sale of Receivables

Sale of Receivables

On September 29, 2023 (the “Closing Date”), Rackspace US, Inc. and Rackspace Receivables II, LLC, a bankruptcy-remote special purpose vehicle (“SPV”), each an indirect subsidiary of the company, entered into an accounts receivable purchase agreement (the “Receivables Facility”) with PNC Bank, National Association (“PNC”) and other parties thereto.

Under the Receivables Facility, certain indirect wholly-owned subsidiaries of the company have sold and/or contributed, and may continue to sell and/or contribute on a revolving basis, their current and future accounts receivable to the SPV, which, in turn, will sell and transfer, and may continue to sell and transfer, the accounts receivable to PNC in exchange for cash. The Receivables Facility will terminate on September 29, 2026 unless earlier terminated in accordance with its terms and the SPV can sell accounts receivable based upon the face amount of eligible receivables in the collateral pool up to an aggregate maximum limit of $300.0 million. The purpose of this arrangement is to enhance the company's financial flexibility by providing additional liquidity.

The Receivables Facility is subject to yield charges based upon a rate as specified in the agreement. The SPV is also required to pay certain customary fees on a monthly basis in addition to an upfront fee and a commitment fee. The Receivables Facility contains certain customary termination events, as well as customary representations and warranties, affirmative and negative covenants, indemnification provisions, and events of default, including those providing for the acceleration of amounts owed by the SPV to PNC upon the occurrence of certain events.

The transfer of receivables to PNC are accounted for as sales because effective control and risk associated with the receivables is passed to PNC. As these transfers represent true sales, we derecognize the sold receivables from our Condensed Consolidated Balance Sheets. Cash proceeds related to the receivables sold are included in cash from operating activities in the Condensed Consolidated Statements of Cash Flows. Yield charges and fees recorded in connection with the sales are recorded within “Other expense, net” in the Condensed Consolidated Statements of Comprehensive Loss. The company maintains continuing involvement with the sold receivables by providing collection services in exchange for a servicing fee. Servicing fees are immaterial and no servicing asset or liability has been recognized. The company may incur a recourse obligation in limited circumstances. Separate accruals have been established for recourse obligations and are immaterial as of September 30, 2023.

As of September 30, 2023, we had sold accounts receivable having an aggregate face value of $209.0 million in exchange for cash proceeds of $209.0 million. In connection with this sale, we recorded $4.9 million of expense, consisting of $1.6 million of estimated yield charges representing a loss on sale and $3.3 million of transaction costs, within “Other expense, net” in the Condensed Consolidated Statements of Comprehensive Loss for the three and nine months ended September 30, 2023. We used $50.0 million of the cash proceeds to fully repay the outstanding borrowings under the Revolving Credit Facility and the remainder will be used for general corporate purposes. The SPV holds unsold receivables of $130.6 million as of September 30, 2023 that are pledged as collateral to PNC.