Aretec Group Inc.

The stable outlook reflects S&P Global Ratings' view that over the next 12 months, Aretec will continue to improve earnings and leverage. We also expect the company will maintain adequate liquidity and a comfortable cushion relative to the leverage covenant on its revolving facility. We could lower the ratings if Aretec's interest coverage approaches 1.2x, liquidity worsens, or we expect the first-lien net leverage to weaken beyond our current expectations (so that the cushion of the 6.5x first-lien net leverage covenant threshold deteriorates substantially). We could raise the ratings if we expect the company's leverage to remain below 6.0x or if debt service coverage improves sustainably above 3x. The 'bbb-' anchor (the starting point for our rating) is in line

...Our ratings on Aretec Group 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 an acquisitive growth strategy, a high debt burden, our expectation for gross debt to S&P Global Ratings-adjusted EBITDA of more than 6.0x at the end of 2022, and modest debt service coverage of approximately 2.5x. While rising short-term rates will boost cash sweep revenue and bolster earnings, we believe a sustained improvement in leverage below 6.0x next year is contingent on improvement in equity and bond market valuations and no further debt-funded acquisitions. Aretec has limited credit and market risk exposure and appetite. This is because the firm holds very small securities inventories and does not self-clear for most of its business segments....

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