Moody's rates RCS loans B2, Caa1

Moody's Investors Service said it assigned a B2 corporate family rating to RCS Capital Corp., a B2 rating to its proposed $550 million five-year first-lien term loan, a B2 rating to its proposed $25 million three-year revolving credit facility and a Caa1 rating to its proposed $150 million seven-year second-lien term loan. The outlook is stable.

The credit facilities will be used to fund, in part, RCS' acquisition of Cetera Financial Group, Inc. and to refinance Cetera's existing debt.

The agency said RCS' B2 corporate family rating is supported by its position as a leading wholesale distributor of non-traded REITs and similar programs that provide for flow-through tax treatment under U.S. tax law and its prospective position as the second largest independent broker dealer in the United States.

In Moody's view, the rating is constrained by a variety of credit risk factors that include the high rate of growth in the direct investment program business and planned acquisition-driven growth in the independent broker dealer activities; the challenges posed to the firm's risk management, compliance and governance infrastructure given RCS' growth ambitions and short track-record as a public company; the company's existing concentration of revenue and earnings in direct investment programs, mostly generated via transactions with affiliates; and the firm's high initial leverage and risks to its debt service capacity should it realize lower-than-anticipated synergies at the independent broker dealers or encounter a significant downturn in the direct investment program market.

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