RCS Capital Loses Ex-CEO as Board Member

RCS Capital (RCAP) says one of its board members — Edward Michael Weil — has resigned.

Last month, Weil was replaced by Larry Roth as CEO of the besieged firm, after one year on the job. Earlier, he served as president, treasurer, secretary and director of RCAP; his roles have included leadership of publicly traded American Realty Capital Properties, or ARCP, and of nontraded REITs sponsored by AR Capital.

The entwined entities — founded by real-estate mogul Nicholas Schorsch — have come under scrutiny after ARCP reported $23 million in accounting errors in October 2014; more recently, a deal to sell some of RCS Capital’s assets fell apart when Apollo Global Management cancelled the transaction.

According to RCS Capital, Weil’s “resignation did not result from a disagreement with the company or the board of directors.”

RCS Capital said last week that it would shutter troubled wholesale distribution unit, Realty Capital Securities, and agreed to pay $3 million to the state of Massachusetts to settle charges tied to alleged fraudulent proxy-voting schemes.

That news followed a decision by Moody’s Investors Service to downgrade RCAP’s credit ratings on $750 million of debt. The downgrades reflect “RCS’ diminished ability to satisfy its debt load from its ongoing activities, and also the risk that it may not be able to attract a sufficient and timely amount of new investment that is necessary to fully protect creditors’ interests, as it seeks to recapitalize its balance sheet,” Moody’s explained in a statement.

With its stock trading around $0.35, the company is urgently trying to raise funds.

(According to RCAP, its largest shareholder is the hedge fund Luxor Capital Group at 12.5%; BlackRock Fund Advisors owns nearly 3% and Vanguard nearly 2%, while its IBD J.P. Turner owns 4%. These and other institutional shareholders control 42% of the company, and insiders own 43% of its shares.)

According to Mark Auerbach, RCAP’s non-executive chairman, the company’s latest moves are part of the firm’s “strategic plan to reposition the company as a pure-play, Cetera-only focused retail advice business.” (Cetera includes a number of broker-dealers and about 9,500 affiliated independent financial advisors.)

“These latest steps, which are extremely difficult but necessary, along with our recently announced capital raise, lender modifications and other initiatives, will enable us to further rationalize our business while we continue to work with Lazard to explore options to raise additional capital and complete further asset divestitures,” Auerbach explained in a statement.

RCAP expects to close the wholesale distribution business by March 31.

Moody’s, though, remains quite bearish on RCAP’s future. Cetera may be “a reasonably strong franchise, yet [it] has significantly underperformed compared to management’s expectations and is not producing sufficient cash flows to service RCS’ existing level of debt,” Moody’s explained in a statement.

RCS Capital has a total of $850 million in debt and $300 million in preferred equity. It bought Cetera for $1.15 billion in early 2014.

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