RCS Capital files for Chapter 11 Bankruptcy Protection

RCS Capital files Chapter 11

RCS Capital, one of the biggest investment firms in the world, recently announced that it had filed for Chapter 11 bankruptcy protection. According to a Wealth Management report, the firm has entered into a prearranged debt refinancing agreement with its lenders to receive a $150 million cash infusion into its retail investment unit, Cetera Financial Group. The company also projected that it will save over $500 million through its debt reduction and removal of preferred stock.

RCS Capital spirals into insolvency

The firm stated in its court documents that it sought Chapter 11 bankruptcy protection for several reasons, but chief among them were two recent events. According to the Wall Street Journal, RCS Capital had accrued an $800 million long-term debt total in addition to $300 million in liabilities that included interest payments on preferred stocks to shareholders.

The company began its financial decline in late 2014 after a $23 million accounting error. A subsidiary of RCS Capital had fraudulently used fake proxy votes from shareholders, which caused regulators from the state of Massachusetts to file fraud charges against the firm. As a result, RCS Capital settled the lengthy lawsuit for $3 million.

In its bankruptcy filings, the firm also cited that it has attempted to raise capital and sell off a portion of its remaining assets. Seeking Alpha reported the firm was cash strapped after a failed $25 million acquisition deal where Apollo Global Management LLC planned to buy RCS Capital’s wholesale broker/dealer business, but reduced its offer to $6 million. Eventually, this led to the private equity giant taking the offer off the table.

As a result of its recent pitfalls, the firm closed the year with its stock prices having dropped to 30 cents per share.

The firm’s restructuring plan calls for asset sales

In its court documents, RCS Capital stated that it plans to wind down its wholesale distributions operations. As part of its pre-packaged debt restructuring proposal, the firm intends to raise capital by selling off a portion of its remaining assets. These assets include Hatteras Realty, which RCS Capital plans to sell for $5.5 million to the Hatteras Funds management group. This deal also involves a portion of earn-out obligations.

The firm has also secured an agreement for the sale of its subsidiary unit, SK Research, which will close at the end of January. Following the close, RCS Capital also intends to pursue the sale of its American National Stock Transfer, DirectVest, Trupoly and Docupace Technologies units to finance its debt repayment obligations.

By eliminating common stock, preferred stock and non-core assets, the firm will remove a substantial portion of its debt liabilities and overhead costs, which will improve its balance sheet. According to a Wealth Management report, the company plans to secure further debt reduction deals to emerge from the restructuring period as a viable business model.

Are you a creditor in a bankruptcy?  Have you been sued by a bankrupt?  If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.