All options are on the table for Cetera Financial Group. The parent company which owns a network of six independent broker-dealers confirmed it is retaining investment bankers to evaluate its capital structure and examine specific capital allocation issues.
Earlier reports from investment banking sources in FA said the firm reportedly was close to selecting Goldman Sachs & Co. to explore strategic alternatives for the firm's capital structure. An announcement about the advisor is expected next week.
Since emerging from bankruptcy in 2016, after it was recapitalized by private equity firms, Cetera Financial Group has performed beyond most reasonable expectations for a once-bankrupt B-D. Very few broker-dealers manage to enter bankruptcy and resurface as viable, independent entities. Most are absorbed into other B-D firms willing to assume certain liabilities only at firesale prices.
According to sources in the private equity world, Cetera initially was looking to swap higher-cost debt for less expensive capital. However, they added that some major investors who invested in a bankrupt Cetera in 2016 wanted to explore selling,or at least repricing, their stakes, given its financially impressive turnaround.
Cetera went bankrupt in early 2016 and its pre-bankruptcy shareholders were wiped out. The firm quickly emerged from Chapter 11 after it was recapitalized by a number of private equity investors, including Carlyle Group, Fortress Capital and investment management firm Eaton-Vance.
Today, Cetera reportedly has more than 20 shareholders, but none own more than 20 percent of the firm. Most, including senior creditors who received equity for their debt, own less than five or seven percent of the Cetera network. Given such a broad dispersion of ownership, there is likely a wide disparity of investment objectives among Cetera's owners.
More than a few private equity firms have underperformed, so they might want to cash out to impress disgruntled investors, sources said. Other investors may be satisfied and want to let their profits continue to climb.
Cetera said early on Friday it was examining its capital structure "continuously." Investment banking sources said the exploration of options could entail a change of control of the B-D network or a smaller transaction.
In a prepared statement, the firm said, "We are undertaking this capital structure review from a position of strength, having generated robust financial performance and built up a solid balance sheet since the successful conclusion of our restructuring in the first half of 2016."
Earllier in the day, a Cetera spokesperson described the process as part of the normal course of business. Interest rates are rising so bankers said Cetera understandably wants to refinance its debt and lock in better interest rates.