And the new owners of Cetera Financial Group will be …

January 8, 2016

Two private-equity firms and an asset manager have been identified as among the broker-dealer network’s new ownership

Jan 7, 2016 @ 11:57 am

By Bruce Kelly | Investment News

The eventual owners of Cetera Financial Group include some of the most prominent names in high-risk, private-equity finance, including Fortress Investment Group and Carlyle Investment Management, as well as asset manager Eaton Vance Management.

Cetera’s parent company, RCS Capital Corp., or RCAP, said Monday it was filing for a pre-arranged, Chapter 11 bankruptcy reorganization, in which its debt would be converted to equity in Cetera, a network of 10 broker-dealer firms that collectively have about 9,500 advisers.

Cetera’s change in ownership is contingent upon RCAP successfully entering and completing its bankruptcy reorganization, according to a filing with the Securities and Exchange Commission from late Wednesday.

RCAP and its first and second lien lenders entered a forbearance agreement at the end of December that gave RCAP until Jan. 29 to enter into bankruptcy protection. Following the restructuring, substantially all of the equity in the new Cetera Financial Group will be owned by those lenders.

In the filing, RCAP did not state the percentage of equity each of the three firms would control in Cetera. Nor did it identify in the filing other potential equity owners besides Fortress, Carlyle and Eaton Vance.

RCAP will be delisted from the New York Stock Exchange and Cetera will once again become a private company. Cetera’s broker-dealers will not be involved with the bankruptcy, according to RCAP.

As part of RCAP’s corporate restructuring, Cetera is receiving a $150 million infusion of new capital from its bond holders, the prospective owners of the company.

The current owners of its common and preferred shares, however, will have their investment wiped out under the bankruptcy reorganization. The restructuring reduces RCAP’s debt and obligations from $1.1 billion to a little more than half that amount, or $650 million.

Fortress, Carlyle and Eaton Vance did not immediately respond to requests for comment.

The change in Cetera’s ownership will put the broker-dealer network squarely back in the lap of private-equity investors, which have shown a keen interest in independent advisers and brokers over the past decade.

In 2005, private-equity firms Hellman & Friedman and Texas Pacific Group bought a majority stake in what eventually would be LPL Financial, which is the largest independent broker-dealer, with more than 14,000 registered reps and advisers.

In 2014, Lightyear Capital, a private-equity fund controlled by Donald Marron, sold what was then Cetera to Nicholas Schorsch, who at the time possessed the controlling share of RCAP.

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John E. Moriarty, ChFC
December 2015
February 3, 2016

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