RCS Capital Files for Chapter 11, SC Distributors Confirms Independence
RCS Capital (NYSE:RCAP) filed for Chapter 11 bankruptcy on Sunday as part of its previously announced strategy to transform Cetera into a private retail business. The process is expected to conclude in May 2016.
According to the bankruptcy filing, the company listed assets of $1.98 billion and debts of $1.39 billion.
As reported by The DI Wire early last month, key lenders will invest $150 million into its retail advice division, Cetera Financial Group, one of the nation’s largest networks of independent broker-dealer firms which the company purchased nearly two years ago for $1.2 billion.
Cetera payroll and benefits, vendor payables and all other liabilities, including the deferred compensation plans, will continue as is and will not be impaired or modified. Cetera member broker-dealer companies and registered investment advisors will not be included in the bankruptcy proceedings.
“The restructuring of the company’s balance sheet is one of the last remaining, yet critical steps in the overall repositioning of the company…,” said Larry Roth, chief executive officer of Cetera Financial Group. “I’d like to reiterate to our advisors and institutions that the restructuring of RCS Capital will not impact the existing deferred compensation plans or other related compensation plans at Cetera, which will remain in effect in their current form.”
The bankruptcy terms were reached by a majority of RCS Capital’s first and second lien lenders, which in aggregate represented $709 million, as well as holders of a majority of the company’s outstanding unsecured debt. Substantially all of the equity of the company following the restructuring will be owned by the current first-lien and second-lien lenders.
The Chapter 11 plan includes a creditor trust will be established for unsecured creditors, which will be funded with a combination of cash, warrants to purchase equity in the reorganized company, and certain claims and causes of action held by the company and its subsidiaries.
In addition, unsecured debt and preferred stock aggregating in excess of $1.19 billion will be discharged and all of the existing common stock will be eliminated.
The agreement also includes a retention program for eligible Cetera Financial Group-affiliated advisors in the new post-bankruptcy company.
Roth added, “The actions we have taken over the past several months, while difficult, are aligned with our goal to transform Cetera into the retail advisory platform of the future. The underlying value proposition of Cetera remains intact, as does the reason why advisors have joined, and stayed on, our platform. As evidenced by Cetera’s strong retention rates, the level of institutional knowledge and management stability demonstrated by our financial advisors over the years clearly stands out in our industry.”
SC Distributors LLC and Strategic Capital Advisory Services LLC also closed its previously announced transaction to repurchase SC from RCS Capital Corporation.
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.
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.
