Larry Roth, CEO of Cetera, says the firm will get a "truly fresh start."

During this week’s FSI OneVoice conference, one large independent broker-dealer president said in a private conversation that he felt “an air of trepidation” among the independent broker-dealer executives gathered in Orlando. However, that trepidation was partly offset by the friendliness of those execs to each other. “Everybody’s being really nice to one another,” that BD president said, “since none of us knows who we may be working for in a couple of weeks.”

This weekend, some of the uncertainty among IBDs will be reduced, as RCS Capital Corp. enters a prearranged Chapter 11 bankruptcy filing, most likely late Sunday, Jan. 31, according to a person familiar with the situation. That person said RCS Capital, which came to prominence under the leadership of Nicholas Schorsch, has received approval from more than two-thirds of its first and second lien holders, and from its unsecured debtholders who hold a majority of RCS Capital’s outstanding debt, on the Chapter 11 terms.

(RCS Capital had announced Jan. 4 that it planned to file for bankruptcy this month; see RCAP to File for Bankruptcy; Cetera to Become Private Firm.)

In addition, another Chapter 11 filing will be made — this one a prepackaged filing — likely on or before March 25, by the holding companies of Cetera Financial Group and some other BD holding companies — not the four broker-dealers which constitute Cetera — which are guarantors of RCS Capital debt.

Larry Roth, CEO of Cetera, said in a statement that the Chapter 11 filings will “continue to advance our broader plan to become a Cetera-only, independent, well-capitalized private company, no longer burdened with legacy issues.”

Saul Burian, the managing director at the investment banking firm Houlihan Lokey, which advised RCS Capital’s first lien lenders, said in a statement that “we expect an expeditious restructuring that allows Cetera Financial Group to thrive as an independent private company.” The first and second lien holders, many of which are institutional investors, will become majority owners of the new Cetera, which will be a private company. 

Roth said that the restructuring will provide Cetera “with a truly fresh start, including the additional capital to continue to invest in the best possible platforms, products and services for the financial advisors and financial institutions we support.”

The person familiar with the situation stressed that Cetera’s four BDs, and their RIA firms, will not be involved in either Chapter 11 filing, that none of the clients of Cetera’s reps or RIAs will be notified of the bankruptcy filings, and that Roth and Cetera’s existing management team will continue in place.

The person also stressed that Schorsch will have no ownership, in fact “no relationship” at all with Cetera, nor will former RCS Capital board member Edward Weil. Roth replaced Weil on the RCS Capital board in December.

In addition, the person said a “healthy” retention program for certain Cetera advisors has been approved by management, with distributions to advisors to take place “over the next couple of months.”

On Jan. 22, RCS Capital said it had hired a turnaround specialist, Bradley Scher, as its new CEO.

There are 10 separate broker-dealers in the Cetera network, including four different Cetera-branded firms, First Allied Securities, Investors Capital and Summit Brokerage Services.

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