RCS Capital is expected to file a pre-arranged bankruptcy late Sunday night that will extinguish all of its obligations.
The move follows an announcement earlier this month that the holding company had reached an agreement with its first and second lien debtholders, and these creditors will become the majority equity shareholders of the surviving companies, the Cetera group of broker-dealers. In addition, Eaton Vance Management, Fortress Investment Group and Carlyle Investment Management have agreed to invest private-equity capital in the new concern.
More than two-third’s of RCS Capital’s creditors have agreed to the deal. Going forward, RCS Capital’s former CEO Nick Schorsch and his colleagues will have no interest in the new business concern.
What sources described as “healthy retention bonuses” for eligible Cetera-affiliated advisors have been approved and are expected to begin to be distributed over the next several months.
Though none of Cetera’s brokerage or registered investment advisor entities will be involved in the Chapter 11 filings, some of their holding companies are guarantors of RCS Capital’s debt.
To eliminate these guarantees without negatively impacting the underlying entities, the holding companies will subsequently file a pre-packaged bankruptcy filing on or before March 25. Bankruptcy experts say a pre-packaged bankruptcy filing is simpler and more efficient than the pre-arranged bankruptcy that the parent will go through in that creditors such as vendors can glide through the process with their claims intact.
The Cetera broker-dealers and registered investment advisors will be the lone surviving businesses. Retail clients of the firm will not receive any notification of the proceedings.
“These actions continue to advance our broader plan to become a Cetera-only, independent, well-capitalized private company, no longer burdened with legacy issues,” Cetera CEO Larry Roth said in a prepared statement. “Our restructuring provides 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.”