Get Started for Free Contexxia identifies hard-to-find pieces of information in SEC filings. No more highlighters, no more redlining, no more poring over huge documents. RCS Capital Corp (1568832) 10-Q published on Nov 16, 2015 at 5:14 pm
Reporting Period: Sep 29, 2015
Because of this decline in operating results and the reduction in asset values, the Company’s leverage has increased and the Company’s debt coverage has declined. As a result, the Company was not in compliance with the fixed charge coverage ratio and the secured leverage ratio covenants in the Company’s first and second lien credit agreements (credit agreements are described in Note 9) as of September 30, 2015. The Company sought and obtained relief from these covenants for the period ended September 30, 2015 and also obtained certain other amendments to those credit agreements. See Note 22 for more information. If the Company is unable to raise additional capital and/or obtain further accommodations from the lenders, the Company will fall out of compliance with those financial covenants at the next measurement date, December 31, 2015. Absent further relief from the lenders, the failure to be in compliance with financial covenants by the applicable cure date in March 2016 would enable the lenders to accelerate the maturity of the Company’s indebtedness under the credit agreements and potentially trigger cross defaults or acceleration of other obligations. While there may be opportunities to take corrective action after December 31, 2015, other constraints, such as the limitation on the Company’s ability to control the vote of the single outstanding share of Class B common stock (which is the controlling share on votes of the Company’s common stock as described in Note 12), may reduce the Company’s ability to effect remedial action after January 31, 2016. Until January 31, 2016, an independent committee of the Company’s board of directors holds a proxy to vote the Class B common stock on specified matters, which will expire on such date unless the Company enters into a definitive agreement with respect to new capital or another strategic transaction meeting specified requirements by such date. See Note 22 for more information.
On August 6, 2015, the Company entered into an agreement with APH pursuant to which the Company agreed to sell its wholesale distribution business, consisting of Realty Capital Securities and StratCap, and certain other assets, including the Company’s transfer agent, ANST, to APH or an affiliate of APH, for an aggregate purchase price of $25.0 million, payable in cash and subject to certain purchase price adjustments. Realty Capital Securities and ANST were expected to be sold to APH during the fourth quarter of 2015 for $20.0 million. The sale of Realty Capital Securities does not include the sale of the Company’s investment banking division. The Company has evaluated the transaction and concluded the assets and liabilities of Realty Capital Securities and ANST meet the criteria to be classified as held for sale as of September 30, 2015 and, therefore, the consolidated statement of financial condition as of December 31, 2014 was recast to reflect the held for sale classification. The sale of StratCap for $5.0 million was not expected to close until the StratCap earn-out is satisfied on December 31, 2017; therefore, the assets and liabilities of StratCap do not meet the criteria to be classified as held for sale as of September 30, 2015. The Company is in continuing negotiations to obtain a waiver to release it from the StratCap earn-out (the “StratCap waiver”), in which case the Company would sell StratCap prior to December 31, 2017. The StratCap waiver is not likely to be obtained by September 30, 2016. On November 8, 2015, the agreement to sell the wholesale distribution business was amended by the parties to, among other things, exclude ANST from the transaction. See Note 22 for more information.
On November 10, 2015, the Company received notification from the NYSE that the Company was no longer in compliance with the NYSE’s continued listing standards for the Class A common stock because the average closing price of the Class A common stock had fallen below the NYSE’s per share price requirements. Section 802.01C of the NYSE Listed Company Manual requires that the average closing price of a listed company’s common stock be at least $1.00 per share over a consecutive 30 trading-day period. On November 6, 2015, the average closing price of the Class A common stock over the preceding consecutive 30 trading-day period was below the $1.00 requirement. Under the NYSE’s rules, the Company has a period of six months following the receipt of the NYSE notice, subject to possible extension, to regain compliance with the NYSE’s continued listing standards. The Company can regain compliance if the Class A common stock has a closing price and a 30 trading-day average closing price of at least $1.00 per share on the last trading day of the six-month period following receipt of the NYSE notice or the last trading day of any calendar month during the six-month period, subject to compliance with other continued listing requirements. In addition, however, the Company has been informed by the NYSE that if the price of the Class A common stock ever drops below a certain lower level, as determined by the NYSE, the NYSE will suspend trading and commence delisting procedures. The NYSE notification did not affect the Company’s business operations or the Company’s SEC reporting requirements and did not conflict with or cause an event of default under any of the Company’s material debt or other agreements. However, if the Class A common stock ultimately were to be delisted for any reason, it could negatively impact the Company by (i) reducing the liquidity and market price of the Class A common stock; (ii) reducing the number of investors willing to hold or acquire the Class A common stock, which could negatively impact the Company’s ability to raise equity financing; (iii) limiting the Company’s ability to use a registration statement to offer and sell freely tradable securities, thereby preventing the Company from accessing the public capital markets; (iv) impairing the Company’s ability to provide equity incentives to its employees; and (v) causing a right of repurchase under the convertible notes and certain corresponding events of default under other material debt and other agreements.
Because of this decline in operating results and the reduction in asset values, our leverage has increased and our debt coverage has declined. As a result, we were not in compliance with the fixed charge coverage ratio and the secured leverage ratio covenants in our first and second lien credit agreements (credit agreements are described in Note 9 to our consolidated financial statements) as of September 30, 2015. We sought and obtained relief from these covenants for the period ended September 30, 2015 and also obtained certain other amendments to those credit agreements. See Note 22 to our consolidated financial statements for more information. If we are unable to raise additional capital and/or obtain further accommodations from our lenders, we will fall out of compliance with those financial covenants at the next measurement date, December 31, 2015. Absent further relief from our lenders, the failure to be in compliance with financial covenants by the applicable cure date in March 2016 would enable our lenders to accelerate the maturity of our indebtedness under the credit agreements and potentially trigger cross defaults or acceleration of our obligations. While there may be opportunities to take corrective action after December 31, 2015, other constraints, such as the limitation on our ability to control the vote of the single outstanding share of Class B common stock (which is the controlling share on votes of our common stock as described in Note 12 of our consolidated financial statements), may reduce our ability to effect remedial action after January 31, 2016. Until January 31, 2016, an independent committee of our board of directors holds a proxy to vote the Class B common stock on specified matters, which will expire on such date unless we enter into a definitive agreement with respect to new capital or another strategic transaction meeting specified requirements by such date. See Note 22 to our consolidated financial statements for more information.
In addition to the above, shortfalls in our ability to generate cash from our operations and costs that may be associated with paring down our operations and legal and other professional expenses in connection with our restructuring activities and pending legal proceedings increase our cash needs and therefore the necessity for us to raise additional capital for operating purposes as well as to make payments on the credit agreements in accordance with contractual terms and achieve compliance with the requirements of the credit agreements.
We are currently engaged in a process to raise capital and reduce contractual exposures through the issuance of additional securities and/or asset divestitures. We have taken certain actions to provide temporary liquidity and to afford time to raise additional capital and/or make asset divestitures as described in Note 22 to our consolidated financial statements. We have also received various proposals from multiple parties for additional capital (including via the exercise of existing conversion options) and/or for the purchase of certain assets, that are subject to the completion of due diligence now in progress, documentation and other conditions. We consider that there are multiple viable proposals, however we are not yet party to any binding agreements to effect these proposals. Accordingly at this point in time there can be no assurance that these efforts will be successful and therefore there is substantial doubt about our ability to continue as a going concern. Should we no longer continue to support our capital or liquidity needs, or should we be unable to successfully execute the above mentioned initiatives, the above items would have a material adverse effect on our business, results of operations and financial position.