Aretec Group Inc.

Even though we expect leverage to decline, we continue to see the firm's private equity ownership and aggressive financial management as a rating constraint as it entails an acquisitive growth strategy and a high debt burden. This has resulted in negative tangible equity, fairly high leverage, and volatile debt service coverage. The stable outlook reflects our expectation that Aretec's profitability and S&P Global Ratings-adjusted debt-to-EBITDA leverage should continue to benefit from higher short-term interest rates over the next 12 months, even as the company's private equity ownership and aggressive financial management constrain our assessment of capitalization and the rating. Over the next 12 months, we could lower the ratings if we expect Aretec's interest coverage to substantially decline, liquidity to

...Despite the debt-funded acquisition of Securian Financial's retail wealth management business, we expect Aretec Group Inc.'s S&P Global Ratings-adjusted debt to EBITDA leverage to be about 4.0x at the end of 2023. This would be a significant improvement from over 6x in first-quarter 2022. We expect the decrease will be driven predominantly by increased cash sweep revenue from higher interest rates. Even though we expect leverage to decline, we continue to see the firm's private equity ownership and aggressive financial management as a rating constraint as it entails an acquisitive growth strategy and a high debt burden. This has resulted in negative tangible equity, fairly high leverage, and volatile debt service coverage. Aretec has limited credit and market risk exposure and appetite, in our view. 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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