RCS Capital Makes a Deal

The investment company RCS Capital Corp. announced a financial restructuring plan that includes a voluntary petition for a prearranged Chapter 11 bankruptcy.

Cetera CEO Larry Roth

After a challenging 2015, investment company RCS Capital Corp. commences the New Year with a new plan. The retail investor-focused firm announced a financial restructuring plan that includes a voluntary petition for a prearranged Chapter 11 bankruptcy and an agreement in principle with certain stakeholders.

The deal, which has the backing of a steering committee of first- and second-lien lenders holding a majority of RCS Capital’s principal amount outstanding, calls for RCS Capital to restructure its debt and balance sheet with the removal of certain non-core assets and liabilities, and redirect its focus to its retail advice division, Cetera Financial Group. A group of RCS Capital’s lenders have committed to infusing $150 million in new working capital into Cetera.

To facilitate the plan, the firm will file for bankruptcy in late January, and its lenders will seek an accelerated timetable for its emergence. When all is said and done, RCS Capital’s current first- and second-lien lenders will own the vast majority of the firm’s equity, and Cetera, which RCS Capital acquired for nearly $1.2 billion in 2014, will be the center of attention.

“RCS Capital’s announcement today defines the path for transforming Cetera into a private, independently run organization that is dedicated exclusively to the financial advisors and financial institutions we support,” Cetera CEO Larry Roth, who also became RCS Capital’s new CEO in November, said in a prepared statement. “The restructuring marks a fresh start that will place the issues of the past months firmly behind Cetera, while providing the financial advisor network with the capital and operational structure to profitably grow its market leadership.”

The “issues of the past few months” include Massachusetts Secretary of the Commonwealth Securities Division’s allegations of violations, which ultimately led to RCS Capital paying a fine and voluntarily withdrawing its broker-dealer license in Massachusetts and all other state and federal jurisdictions. And RCS Capital’s stock took a major hit when its plan for pocketing a notable chunk of cash were dashed as Apollo Global Management nixed a deal to buy the firm’s wholesale distribution business. However, it was guilt by association that first kicked off trouble for RCS Capital in late 2014, when American Realty Capital Properties (now Vereit)–a company that, like RCS Capital, had been controlled by real estate titan Nicholas Schorsch–admitted to accounting errors. RCS Capital’s stock took a nosedive.

“This has not always been an easy journey, and we thank the advisors and institutions we serve for the remarkable loyalty and patience they have shown to us throughout this time,” Roth added.