Hatteras Splits From Crumbling RCAP as Moody’s Mulls Downgrade

These developments followed the debacle of October 2014, when American Realty Capital Properties (now VEREIT) reported $23 million of accounting errors. After that news broke, many broker-dealers stopped selling nontraded REITs and other products associated with American Realty Capital Properties, AR Capital and RCAP, ventures founded or led in the past by real-estate mogul Nicholas Schorsch.

Meanwhile on Tuesday, Moody’s Investors Service placed the following RCS-related ratings on review for downgrades: RCS’ 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.

“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,” Moody’s explained in a statement.

The termination of Apollo’s planned investment in AR Capital, “heightens the uncertainty concerning the value of RCS’ investment banking and capital markets activities, which are dependent on transactions with products sponsored by AR Capital to generate the bulk of their income,” it adds.

Other factors that could negatively impact RCS’ creditors include: 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, the ratings agency says.

“RCS’ ratings could be downgraded should Moody’s conclude that the prospects of RCS’ independent retail advisory business are not  sufficiently reliable and adequate to satisfy RCS’ existing obligations at their current ratings level,” it added.