Home Alts News Hatteras Exits Sinking RCS, While Moody’s Considers Downgrade

Hatteras Exits Sinking RCS, While Moody’s Considers Downgrade

Hatteras Funds announced that its senior management team has signed a letter of intent to repurchase the firm from RCS Capital Corporation (NYSE:RCAP) for $5 million, just 16 months after RCS paid $40 million for the provider of alternative investment funds. According to a company statement, Hatteras will re-establish itself as an employee-owned alternative investment boutique.

The announcement comes just days after a planned merger between Apollo Management, AR Capital and a segment of RCS fell apart. Apollo had agreed to acquire the wholesale distribution arm of the troubled RCS, which has seen its stock price fall from a high of $38.59 in March 2014 to just $0.47 as of yesterday’s market close, for $25 million in August – a price tag which fell to $6 million on Monday following the collapse of the original deal.

Acquired by RCS Capital on June 30, 2014, Hatteras has continued to operate as an independent reporting segment. According to a statement from management, repurchasing the firm allows Hatteras to “focus on providing innovative alternative investment solutions across the liquidity spectrum.”

“We are excited to reestablish Hatteras as a 100 percent employee-owned firm. We will continue to focus on providing alternative investment solutions designed to help financial advisors build better, more diversified portfolios for their clients,” said David Perkins, chief executive officer. “We believe we are well-positioned to execute on our business plan because of our strong asset base and deep relationships with financial advisors.”

There will be no changes to Hatteras Funds’ leadership and portfolio management teams as a result of the transaction. Business operations and processes will not be impacted by the transaction. The transaction is subject to the approval of the funds’ boards and shareholders and is expected to close in early 2016.

Yesterday, Moody’s Investors Service reported that it had placed the following RCS ratings on review for downgrade: B3 corporate family rating, B3 $575 million senior secured first lien term loan, B3 $25 million senior secured first lien revolving credit facility, and Caa2 $150 million senior secured second lien term loan.

Moody’s said, “The rating actions follow a series of announcements made by RCS and affiliated entities that together indicate a heightened level of uncertainty concerning RCS’ strategic priorities and prospects, [including] the termination of Apollo Global Management planned investment in AR Capital, ongoing changes to RCS’ board composition, the changed terms and reduced price of the planned partial sale of RCS’ wholesale distribution activities to Apollo; the planned sale of RCS’ liquid alternatives platform at a significant discount to its 2014 purchase price; and RCS’ continued exploration of strategic alternatives in pursuit of capital structure rationalization.”