RCS Capital Corp. this weekend intends to take significant step in cleaning up its fiscal woes by making another round of bankruptcy filings that will include broker-dealer holding companies of its Cetera Financial Group firms, according to a source familiar with the situation.
Burdened by debt, RCS Capital Corp., or RCAP,
filed for a pre-arranged Chapter 11 filing at the end of January as part of an agreement reached with a majority of its first and second lien lenders. RCAP's bankruptcy seeks to eliminate hundreds of millions of dollars of debt. Cetera Financial Group is expected to emerge as an independent company after the bankruptcy.
Certain holding companies of the broker-dealers within the Cetera network of 9,100 advisers are guarantors of RCAP's debt. In order to eliminate these guarantees without impairing or impacting any other aspect of the business, RCAP will include these entities in a subsequent pre-packaged Chapter 11 filing in federal bankruptcy court in Delaware this weekend, according to the source.
Cetera's broker-dealers and registered investment adviser firms will not be involved in this weekend's Chapter 11 filing, the source said. Only certain of the holding companies will be included and not the broker-dealers where the advisers are licensed to transact business.
“We are excited about this important step forward, which puts us in the home stretch to complete our transformation into a Cetera-only organization that is independent, well-capitalized and privately owned,” said Cetera Financial Group chief executive officer Larry Roth in an email to
InvestmentNews.
The first and second lien holders will become the majority owners of the company that emerges from the restructuring. They include large institutional investors and financial institutions.
The restructured Cetera Financial Group will have no relationship with former nontraded real estate investment
trust czar Nicholas Schorsch and his partners following the company's emergence from bankruptcy.
