New York-based brokerage firm RCS Capital officially filed for bankruptcy recently. RCS Capital primarily functions as a holding company. It is a provider of integrated financial solutions and focuses mostly on retail investors.
RCS Capital – the beginning
The story of RCS Capital began in 2013. American investor, entrepreneur, and philanthropist Nicholas Schorsch co-founded investment company American Realty Capital, which was later renamed as AR Capital. In 2013, Schorsch and AR Capital united the investment banking, broker-dealer, and transaction management businesses under a single holding company called RCS Capital Corporation. The company went public in June 2013 and was listed on the New York Stock Exchange.
Schorsch stepped down from the board of RCS Capital in December 2014.
RCS Capital – the closing chapter
Earlier in January 2016, RCS Capital announced that it had planned to voluntarily file for bankruptcy to boost its capital structure. The company was looking to offload some of its non-core businesses and liabilities and shift focus onto Cetera Financial Group, its retail advice segment. The key shareholders of RCS Capital also agreed to invest US$150 million in Cetera.
However, the company filed for chapter 11 bankruptcy protection later in January with an intention to decrease its debt. RCS Capital filed the chapter 11 petition in the US Bankruptcy Court in Wilmington, Delaware. The company’s key investors will gain control of the operations. While filing for bankruptcy, the company listed US$1.98 billion in total assets with a debt of US$1.39 billion.
In December 2015, the company had agreed to pay a fine of US$3 million to resolve claims made by the securities regulators in Massachusetts which stated that it was involved in a shareholder proxy vote scam. It had been trying to raise funds since it lost out on a deal with Apollo Global Management, a global investment company, earlier in November 2015. RCS Capital had been looking to acquire a controlling stake in a consortium of trusts. It had since been offloading assets and dipping into the US$19 billion real estate fund from Schorsch.
The company’s debt restructuring plan, which is backed by lenders, will see the elimination of its common shares and preferred stock worth around US$500 million. It also announced that the current employees, trade vendors, and advisers at Cetera will not be affected by the bankruptcy filing.
Nicholas Schorsch and American hedge fund Luxor Capital Group are RCS Capital’s major shareholders. The first-level and second-level shareholders will assume majority ownership of the company following the bankruptcy.