Aretec Group Inc.

The stable outlook indicates our expectation that Aretec will fairly quickly realize most of its planned expense synergies, which will support the S&P Global Ratings-adjusted debt-to-EBITDA ratio staying between 4.5x and 5.5x and the interest coverage ratio staying between 2.0x and 2.5x. Over the next 12 months, we could lower the rating if we expect Aretec's interest coverage to fall below 2.0x, or if we expect S&P Global Ratings-adjusted debt to EBITDA to substantially increase above 6.0x. An upgrade is unlikely over the next 12 months because of the financial sponsor's appetite for leverage. Over the longer term, we could upgrade Aretec if we expect it to keep its leverage well below 4.0x across interest rate and market cycles because

...Aretec Group Inc.'s private equity ownership has led to aggressive financial management, in our view, including a lack of tangible equity, fairly high debt leverage, and modest debt-service coverage. The company's acquisitive growth strategy, including the acquisitions last year of broker-dealer Avantax Inc. and Securian Financial Group Inc.'s retail wealth management business, has led to a high debt burden, with pro forma gross debt to S&P Global Ratings-adjusted EBITDA of 5.2x at the end of March 2024, modest debt-service coverage of approximately 2.1x, and negative tangible equity. Aretec has limited exposure to and appetite for credit and market risk, in our view. This is because the firm holds very little in securities on its balance sheet and doesn't self-clear for most of its business segments....

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