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January 06, 2016 at 08:52 AM
Moody’s Investors Service downgraded RCS Capital’s (RCAP) overall credit rating and the rating on two specific loans worth $600 million on Wednesday. The credit-ratings agency did keep the rating on a $150 million loan intact, but noted that its rating outlook was “developing.”
This news comes two days after the company said it planned to file for bankruptcy, had secured $150 million from key stakeholders and was restructuring its operations in order to allow the Cetera Financial Group of broker-dealers to become an independent, privately held firm.
Moody’s says the downgrades “reflect RCS’ inability to obtain significant fresh third-party capital investment to support its independent retail advisory franchise, with a resultant heightened level of uncertainty surrounding the magnitude of creditor losses.”
In addition, “RCS’ inability to attract a third-party equity investor, after several months of effort to attract such funding, is evidence of diminished franchise value,” the agency explained in a statement.
RCAP shares traded at $0.04 late Wednesday, after trading above $13 in 2015.
Specifically, Moody’s reduced RCS Capital’s corporate family rating to Caa3 from Caa1, while downgraded its $575 million senior secured first-lien term loan and $25 million revolving credit facility to Caa2 from Caa1. (The Ca rating on RCAP’s $150 million senior-secured second-lien term loan is unchanged.)
The agency reduced RCAP’s corporate family rating to Caa1 from B3 in December, when it also issued a negative outlook on the company’s credit.
RCS Capital “did not provide details of the amounts by which it expects its first and second lien debt to be written down as part of its restructuring, or the terms of a planned $150 million working capital investment from a group of existing lenders,” Moody’s explains in a press release issued Wednesday.
These and other details of the restructuring plans “are key to a better understanding of potential creditor losses, and are subject to negotiation and execution, since RCS expects to enter Chapter 11 in late January 2016, and to complete its restructuring during the second quarter of 2016. However, in combination with the inability to attract equity cited above, this raises the level of uncertainty with regard to creditor losses,” it added.
