With the New Year, the management of RCS Capital (RCAP) — the beleaguered parent company of the Cetera Financial Group of independent broker-dealers — is trying to turn a page on the company’s troubles.
It did so with a bang late-Monday, announcing plans for a Chapter 11 bankruptcy filing, the injection of some $150 million from key stakeholders, as well as debt and capital restructuring plans that should allow Cetera to become an independent, privately held firm.
Shares of RCS Capital did not trade on the first trading day of 2016. They closed trading at roughly $0.30 on Dec. 31, significantly off its 2015 high of nearly $13.30, and traded under $0.03 on Tuesday.
“RCS Capital’s announcement today defines the path for transforming Cetera into a private, independently run organization that is dedicated exclusively to the financial advisors and financial institutions we support,” said Cetera CEO Larry Roth, in a statement.
There had been much industry speculation that Cetera might be sold to a private-equity group or insurance company.
“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,” Roth explained.
RCAP says it intends to file a voluntary petition for a prearranged Chapter 11 bankruptcy later this month. In cooperation with its senior secured lenders, the firm plans “to pursue an expedited schedule for the company’s emergence from Chapter 11,” according to a press release. “Cetera’s member broker-dealer firms will not be involved with the contemplated Chapter 11 filing.”
Roth seemed pleased to putting the past year’s woes behind him and Cetera: “This has not always been an easy journey, and we thank the advisors and institutions we serve for the remarkable loyalty and patience they have shown to us throughout this time,” he added in a statement.
Cuts & More Cuts
As part of the plan to get rid of some non-core assets and liabilities, it expects to trim most corporate overhead expenses and other liabilities. The restructuring likely will involve the elimination of RCS Capital’s common and preferred equity.
“Other than the new proposed equity retention program for Cetera financial advisors and key employees, substantially all of the equity of the company following the restructuring will be owned by the current first- and second-lien lenders,” RCAP explained. .
Cetera’s proposed retention plan for advisors and some employees should include both cash and equity in the post-bankruptcy company. Furthermore, Cetera and RCS Capital’s lenders “have agreed in principle that the reorganization will protect the current deferred compensation arrangements,” according to the news release.