RCS Capital (RCAP) Ratings Affirmed by Moody's

Moody's Investors Service affirmed RCS Capital Corporation's (NYSE: RCAP) (RCS) B2 corporate family rating, B2 $575 million senior secured first lien term loan, B2 $25 million senior secured first lien revolving credit facility, and Caa1 $150 million senior secured second lien term loan; following the company's announcement that it has entered into a definitive agreement to acquire Cole Capital Partners, LLC and Cole Capital Advisors, Inc. (together, "Cole Capital") from American Realty Capital Properties, Inc. for $700 million, plus contingent consideration. The rating outlook remains stable.

RATINGS RATIONALE

Moody's notes that the purchase price will be funded predominantly by $200 million of cash and $200 million of equity. A $300 million 7.5% unsecured promissory note will also be issued to the seller. This issuance would increase Moody's measure of RCS' debt by 34% at June 2014. However, Moody's anticipates that the incremental EBITDA generated by Cole Capital's businesses would result in RCS' pro-forma debt/EBITDA remaining roughly around 3.5x (after the full contributions of each of RCS' recent acquisitions are included). The company's pro-forma financial metrics continue to be broadly consistent with a higher corporate family rating than B2, but this positive factor is offset by the inherent risk in the company's continued appetite for rapid growth. In this respect, the $700 million purchase price (which could increase by a further $130 million of earn-outs) is certainly representative of a significant transaction, and follows only five months after RCS completed its $1.15 billion acquisition of Cetera Financial Holdings, Inc.

Moody's believes that Cole Capital's REIT wholesale distribution and asset management activities are a close strategic fit to RCS' existing businesses, and will add volume and depth to its suite of investment products. Given RCS' background in the REIT sector, the acquisition adds less incremental operational and integration risk, compared to RCS' other recent significant acquisitions of financial advisory firms.

What Could Change the Rating -- Up

A strong demonstration of the successful integration of acquired companies, evidenced by substantial achievement of the anticipated acquisition synergies, successful control of costs and stable operating performance, could result in upward rating pressure; as could the successful organic growth and diversification of RCS' other business activities, with a significantly higher and stable share of non-affiliated revenues and earnings in various product-types. Evident progress and maturation of the risk management and corporate governance functions could also be viewed positively.

What Could Change the Rating -- Down

Deterioration in debt coverage metrics brought about by lower than anticipated acquisition synergies, increased costs or a marked slowdown in the direct investment program business could result in downward rating pressure. Evidence of significant risk management, compliance or governance failures could also result in a downgrade. The announcement of significant new acquisitions with an associated increase in debt leverage could also be viewed negatively.

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