Advisor Group Holdings Inc.

The stable outlook reflects S&P Global Ratings' expectation that Advisor Group's debt service coverage will remain about 2x over the next 12 months while the company maintains sufficient liquidity and comfortable cushion relative to its springing leverage covenant. We could lower the ratings if the company's leverage covenant is activated and minimal cushion is maintained relative to the 7.5x threshold. We could also lower the ratings if Advisor Group's debt service coverage (using covenant EBITDA) approaches 1.2x, liquidity deteriorates, or we observe meaningful attrition of advisers from the company's platform. We could raise the ratings if the company's leverage and debt service coverage improve from weaker-than-peer levels while it demonstrates improving trends in assets under administration and earnings. The 'bbb-'

...Our ratings on Advisor Group Holdings Inc., a holding company whose largely regulated subsidiaries provide brokerage and investment advisory platforms, products, and services, are based on its private equity ownership and aggressive financial management. This entails a high debt burden, negative tangible equity, and limited debt service coverage, partially offset by the firm's strong, stable earnings, minimal exposure to credit and market risk, and good market position in independent brokerage. While the firm has very limited credit and market risk because it does not self-clear, its capitalization is a material ratings weakness because it has no tangible equity to absorb losses, resulting in a negative risk-adjusted capital (RAC) ratio. Although Advisor Group's earnings are sufficient to absorb expected losses, its elevated leverage (7.2x [6.6x] based on gross debt [net debt] to covenant EBITDA) and debt service capacity (about 2x) are commensurate with a very weak capital, leverage, and...

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