- The Washington Times - Wednesday, May 13, 2009

NEW YORK (AP) | Advanta Corp., a credit card lender to nearly 1 million small businesses, will close all its cardholders’ accounts next month in a last-ditch effort to stem losses.

Analysts said the move adds to already growing concerns that the company might not be able to survive. And while other credit card issuers won’t likely fall into Advanta’s situation, analysts said, worries remain that they might decide to cut credit lines further on small businesses.

“Advanta’s problems call into question the business model at the end of the day,” said Sameer Gokhale, a card industry analyst at Keefe, Bruyette & Woods. “Are these really small-business cards, or just consumer cards with really high credit lines?”

As of late March, Advanta wrote off about a fifth of its credit card debt as unrecoverable.

In anticipation of losses escalating further, Advanta said late Monday that on June 10 it will shut down all accounts. June 10 is when Advanta will offer to pay off investors who hold securities backed by its cards — a type of payout known as an “early amortization” of a trust. This way, Advanta said, the company can “maximize its capital and its liquidity measures.”

It is the first early amortization of a trust since First Consumers National Bank’s in 2003, said Christopher Flanagan, a structured finance analyst at JPMorgan.

Advanta is offering holders of its card-backed securities between 65 cents and 75 cents on the dollar. Mr. Flanagan said it is unlikely investors will accept the deal, which could put Advanta in an even more precarious position.

Advanta’s business relied on this trust as a means of funding, he said. “The question now is, do they want to fund it, say, through deposits? Or are they just not going to stay in business?”

Mr. Gokhale also said he had worries about the company’s ability to operate in the foreseeable future. Earlier this year, Stifel Nicolaus & Co. analyst Chris Brendler said it was unlikely Advanta would survive.

Advanta’s stock fell 46 cents, or 30 percent, to $1.09 on Tuesday. The stock has plummeted 96 percent over the past two years.

The Spring House, Pa.-based company started out as a lender to teachers in 1951, and by 2001 was concentrating solely on credit cards to small businesses. It became the largest card issuer focused on small-business customers.

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