S&P Lowers L-T Issuer Rating on RCS Capital (RCAP) to 'D'

Standard & Poor's Ratings Services said it lowered its long-term issuer credit rating on RCS Capital Corp. to 'D' from 'CCC'. We also lowered our issue credit ratings on the company's first-lien term loan and revolving credit facility to 'D' from 'CCC' and our rating on the company's second-lien term loan to 'D' from 'CC'.

"We lowered our ratings on RCS Capital to 'D' as the company disclosed that it has entered into forbearance agreements with a majority of first- and second-lien lenders and the holders of its existing convertible notes," said Standard & Poor's credit analyst Olga Roman. These include the forbearance until Jan. 29, 2016, that allowed the company to forgo the payment of $19.4 million of principal and interest that would otherwise have been due on Dec. 31, 2015. "We believe the company will not make this payment by the end of the one-month grace period because it has also disclosed that it intends to file a voluntary petition for a prearranged Chapter 11 bankruptcy in late January 2016," said Ms. Roman. "We also believe that the default will be a general default and the company will fail to pay all or substantially all of its obligations as they come due."

According to the company's disclosure, the proposed balance sheet restructuring contemplates a reduction of debt and the elimination of preferred stock in excess of $500 million in the aggregate. The restructuring will discharge and eliminate most of RCS Capital's corporate overhead expenses and other liabilities and will eliminate the common stock. Other than the new proposed equity retention program for Cetera financial advisers and key employees, substantially all of the equity of the company following the restructuring will be owned by the current first- and second-lien lenders.

As of Sept. 30, 2015, RCS Capital's secured debt included a $550 million senior secured first-lien term loan, a $150 million senior secured second-lien term loan, and a $25 million senior secured first-lien revolving credit facility. The company's total outstanding long-term debt was $785 million. Additionally, it had $157.2 million of 11% series B preferred stock, $116.1 million 7% series C convertible preferred stock, and $37.5 million of 11% series D preferred stock.

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