Fitch bumps up Advisor Group debt rating

Fitch Ratings on Thursday bumped up Advisor Group Holdings Inc.’s debt to B from B-, saying the firm’s outlook was stable. A year ago, Fitch had called the debt for the holding company of the giant broker-dealer network’s “highly speculative,” a rating commonly referred to as junk.

Last month, Advisor Group said it was merging its eight affiliated broker-dealers under a single, yet-to-be named brand in a process that will take two years. In a subsequent interview, Advisor Group CEO Jamie Price said the network’s new name could be revealed as soon as this summer.

Advisor Group last year acquired two broker-dealers, American Portfolios Financial Services and Infinex Holdings, which Fitch regarded as positive for the network. Those two firms had about $66 billion in assets.

“The upgrade reflects Advisor Group’s declining leverage levels given the earnings benefit from recent acquisitions and higher net yields on cash sweep deposits; improving market position as one of the largest independent financial advisors in the U.S.; and enhanced product and revenue diversification, given recent acquisition activity,” according to the Fitch report.

“We are pleased the rating agencies see the value in this approach” of integrating the recently purchased firms into the network, Price said in an email.

It’s not all positive news for Advisor Group, according to Fitch.

“The ratings are constrained by weak, albeit improving, interest coverage metrics; relatively low [earnings before interest, taxes, debt and appreciation] margin; highly competitive environment associated with the independent broker-dealer and registered investment advisor, or Hybrid RIA, business model; and challenges presented by the volatile economic environment,” according to the report.

“Advisor Group’s ratings are also constrained by its private equity ownership, which introduces a degree of uncertainty over the company’s future financial policies and the potential for more opportunistic growth strategies,” Fitch noted.

In 2019, Reverence Capital Partners, a private equity manager, completed its acquisition of 75% of the Advisor Group broker-dealer network from Lightyear Capital, PSP Investors and others. At the time, the $1.6 billion in debt issued to finance the acquisition of Advisor Group was rated below investment grade in a report by S&P Global Ratings.