Credit card issuer Advanta files for bankruptcy
NEW YORK (Reuters) - Advanta Corp ADVNA.O, a large issuer of credit cards to small businesses, filed for bankruptcy protection after the recession caused many customers to default on payments.
The Spring House, Pennsylvania-based company and more than a dozen affiliates filed for Chapter 11 protection late Sunday with the U.S. bankruptcy court in Delaware.
The filing excluded the company's Advanta Bank Corp unit and customers would still be required to make payments on outstanding credit card balances. Advanta said it is collecting its $2.7 billion portfolio of managed receivables from 360,000 customers.
The company also said its Advanta Bank's capital is below regulatory requirements and that the bank could turned over to a Federal Deposit Insurance Corp receivership.
Advanta said it decided not to fund the bank's capital shortfall to preserve value for other stakeholders.
In afternoon trading, Advanta shares sank 24.4 cents to 8.6 cents on the Nasdaq. The company said a Chapter 11 reorganization would likely involve issuance of new common stock to some creditors.
Advanta filed for protection from creditors a week after CIT Group Inc CITGQ.PK, a major provider of loans to small- and mid-sized businesses, filed its own Chapter 11 petition.
According to court papers, Advanta has assets of $363 million and debts of $331 million.
The company said it has close to $100 million of cash but cannot meet all its obligations. It said it has about $138 million of senior retail investment notes outstanding.
Advanta in May stopped opening new business credit card accounts and shut 1 million accounts, hoping to limit losses and preserve capital after 20 percent of its loans had gone into default.
"The economic debacle over the last two years devastated Advanta's small-business customers and Advanta itself," Chief Executive Dennis Alter said in a statement.
In July, Advanta said it would eliminate half its workforce, leaving it with fewer than 200 employees.
The case In re: Advanta Corp, U.S. Bankruptcy Court, District of Delaware, No 09-13931.
(Reporting by Megan Davies and Jonathan Stempel in New York and Ajay Kamalakaran in Bangalore; Editing by Bernard Orr and Muralikumar Anantharaman)
