Broker-dealer network Cetera will continue operations as an independent broker-dealer, while current parent RCS Capital Corp will enter Chapter 11 by the end of the month.
In a Jan. 4 press release, RCS maintains that Cetera’s member broker-dealer firms, some 9,500 advisors across 10 broker-dealers, will not be involved with RCS’s Chapter 11. Consequently, according to a press release, “…it is expected to remain business-as-usual for Cetera’s employees as well as the advisors and the institutions that Cetera supports.”
RCS announced that “…as an integral part of the balance sheet restructuring, that a group of its lenders have agreed in principle to invest $150 million in new working capital into Cetera which the Company and the Cetera senior leadership team intend to deploy to make continued significant investments in technology, advisor growth and service enhancements in what is already an industry-leading platform for the financial institutions and financial advisors Cetera supports.”
R. Lawrence “Larry” Roth, who will continue as chief executive officer of Cetera, noted that the anticipated $150 million of new working capital would be deployed to “…further cement Cetera's market position as a dynamic, forward-thinking, and advisor- and client-driven provider of investment advice to retail clients. Given this important context, we emphasize to the advisors and institutions we support that we do not expect the proposed restructuring of RCS Capital to impact the existing deferred compensation plans or other related compensation plans at Cetera, which are expected to remain in effect in their current form.”
As for RCS, it notes that the contemplated Chapter 11 restructuring will eliminate the common and preferred equity of RCS Capital, and that “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.”
The agreement includes a retention program for Cetera Financial Group-affiliated advisors and key employees made up of cash and equity in the new post-bankruptcy company. Cetera and RCS Capital's lenders have agreed in principle that the reorganization will protect the current deferred compensation arrangements, while noting that the restructuring and new investment is subject to the negotiation and execution of definitive documentation, regulatory, court and other approvals, and obtaining the approval of the requisite first- and second lien- lenders, and is expected to be completed during the second quarter of 2016.
RCS has been selling or closing assets of the companies that are not directly connected to the retail brokerage business of Cetera Financial since last summer, leading to reports that Cetera was being put on the block.
Cetera Financial Group is a network of independent retail broker-dealers comprised of 10 firms: four legacy Cetera-branded firms (Cetera Advisors, Cetera Advisor Networks, Cetera Investment Services, marketed as Cetera Financial Institutions, and Cetera Financial Specialists) along with First Allied Securities, Investors Capital, Legend Equities Corporation, Summit Brokerage, VSR Financial Services and Girard Securities.
