Home News RCAP to File Chapter 11, Cetera Going Private

RCAP to File Chapter 11, Cetera Going Private

RCS Capital Corporation (NYSE: RCAP), the embattled brokerage firm founded by Nicholas Schorsch, announced that it intends to file voluntary Chapter 11 bankruptcy later this month in a plan to restructure the firm and improve its balance sheet.

The balance sheet restructuring intends to reduce the company’s debt and eliminate its common and preferred stock – representing an aggregate amount in excess of $500 million.

RCS Capital also announced that it has reached an agreement with key lenders to invest $150 million into its retail advice division, Cetera Financial Group, one of the nation’s largest networks of independent broker-dealer firms which it purchased nearly two years ago for $1.2 billion. The firm expects to use the funds to make “significant investments in technology, advisor growth and service enhancements.”

R. Lawrence “Larry” Roth will continue to serve as chief executive officer of Cetera when it is restructured as a private firm next quarter.

According to RCS Capital’s announcement, “Cetera’s member broker-dealer firms will not be involved with the Chapter 11 filing, and [it expects] that its current employees, advisors and trade vendors will not be affected by [the] bankruptcy.”

The company indicated that the purpose of the Chapter 11 filing is to improve RCS Capital’s balance sheet and capital structure by eliminating certain non-core assets and liabilities. Most of the firm’s overhead expenses and other liabilities (other than the restructured indebtedness) will be discharged and eliminated in the bankruptcy.

Roth commented, “RCS Capital’s announcement today defines the path for transforming Cetera in to a private, independently run organization that is dedicated exclusively to the financial advisors and financial institutions we support. 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.”

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.

Numerous affiliates have severed ties with RCS Capital in the past several months. Hatteras is being sold back to its prior owners in a $5.5 million deal expected to close during the first quarter of 2016. SK Research will also be sold in a similar arrangement and is expected to close later this month.

The company also announced that Bradley Scher was appointed as a member of the board of directors, effectively immediately. Since February 2002, Scher has been the managing member of Ocean Ridge Capital Advisors, an independent consulting company providing advice to companies, managements, investors and other constituencies of companies experiencing financial or operating challenges.

RCS Capital Corporation is holding company of Cetera Financial Group. Cetera is the second largest independent financial advisor network in the nation with 9,500 independent financial professionals and more than 600 financial institutions nationwide.

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