Moody’s Investors Service is sounding the alarm about the long-term effects of the coronavirus pandemic on the independent broker-dealer industry. The ratings agency has downgraded Advisor Group and lowered its outlook for the firm as well as for Cetera Financial Group’s holding company.
The ratings agency has downgraded Advisor Group and changed its outlook from stable to negative. The move “reflects the recent Federal Reserve Board cut” put in place as a way to counter the economic impact of the coronavirus pandemic, Moody’s says.
“Moody’s said the economic, operational and other consequences of the ongoing coronavirus pandemic are profound, and the magnitude and duration of these consequences remain fluid and uncertain. Similar to most of its peers, these matters present a fundamental credit challenge to Advisor Group,” according to the rating action.
Moody’s also notes that while Advisor Group’s February acquisition of Ladenburg Thalmann helped the firm scale up, it also hurt its debt leverage, while the synergies the companies hoped to achieve by joining forces will be harder to attain in light of the coronavirus pandemic.
Meanwhile, Moody’s affirmed the rating of Aretec Group, Cetera’s holding company, but changed its outlook from stable to negative, according to a separate rating action published by the ratings agency.
The rating reflects Aretec’s weak profitability and elevated debt levels combined with poor debt servicing capacity, Moody’s says. The ratings agency pointed to Aretec’s “stabilizing financial advisor base and growth strategy focused on advisor recruiting” as helping maintain its rating. But Moody’s also said that the Fed’s rate cuts will hurt Aretec’s asset-based fees, where it earns income on uninvested cash balances, according to the rating action.
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