RCAP Submits Final Chapter 11 Filing in Restructuring Process
Over the weekend, RCS Capital (NYSE:RCAP) filed a pre-packaged plan of reorganization under Chapter 11 with the United States Bankruptcy Court for the District of Delaware. The company expects this to be the final Chapter 11 filing needed to successfully conclude its restructuring process, which should be completed in May of 2016.
As previously announced by The DI Wire, Cetera Financial Group will emerge from the bankruptcy as a private, independent retail business with no remaining ties to Nicholas Schorsch’s legacy firm.
Key lenders will invest $150 million into the retail advice division, one of the nation’s largest networks of independent broker-dealer firms which RCS Capital purchased nearly two years ago for $1.2 billion.
“We are excited about this important step forward, which puts us in the home stretch to complete our transformation into a Cetera-only organization that is independent, well-capitalized and privately owned,” said Larry Roth, chief executive officer of Cetera. “This will truly be a fresh start for Cetera that will include significant additional capital for us to continue investing in industry-leading tools and resources for the financial advisors and financial institutions we support.”
In other RCS Capital and Cetera news, the companies recently reached a settlement in a lawsuit filed at the end of February alleging that Lightyear Capital “poached” two Cetera senior executives while the company was undergoing its restructuring process.
Cynthia Hamel, Cetera’s former senior vice president of strategic operations, and Susan Theder, the company’s former chief marketing officer, allegedly left the company to join former Cetera chief executive officer, Valerie Brown, who is expected to head Lightyear’s new broker-dealer when their purchase of Advisor Group is complete.
Under the agreement, the two executives cannot formally join Advisor Group until September 4th or when the bankruptcy is completed, whichever is latest. Lightyear also agreed not to hire senior management of RCS Capital or its affiliates through September 26th.
Key highlights of the Chapter 11 filing process:
The broker-dealer holding companies that serve as guarantors of the RCS Capital debt will utilize a “pre-packaged” plan of reorganization to extinguish their guarantees associated with the first and second lien debt.
Only these first and second lien secured guarantees will be impaired; all other liabilities of the entities in this filing will be unaffected.
The pre-packaged plan has been accepted by holders of 78.7 percent of the outstanding first lien debt, and 90.3 percent of the second lien debt, satisfying the required thresholds for confirmation under Chapter 11.
Cetera payroll and benefits, vendor payables and all other liabilities at these entities, including the deferred compensation plans, will continue as is and will not be impaired or modified.
The reorganization plan includes a retention program for eligible Cetera Financial Group-affiliated advisors in the new company. The secured lenders have also agreed that the reorganization will not affect the current advisor deferred compensation arrangements.
RCS Capital Corporation is holding company of Cetera Financial Group. Cetera is the second largest independent financial advisor network in the nation with 9,000 independent financial professionals and more than 500 financial institutions nationwide.
RCS Capital has been hammered since October 2014 when a $23 million accounting error and subsequent cover-up was revealed by another Schorsch-controlled entity, American Realty Capital Properties Inc., now Vereit (NYSE:VER).
More recently, last November, the firm’s wholesale distribution business, Realty Capital Securities, was charged with proxy fraud by the state of Massachusetts for fabricating shareholder votes. To settle the charges, it agreed to pay a $3 million fine and close its doors.
