Advanta Corp. said last week that it won't be swayed by bondholders' complaints about the company's decision to sell its credit card business to Fleet Financial Group.
Several Advanta bondholders argue that the company violated a debt covenant that stated the company would not sell "all or substantially all" of its assets.
Although 64% of Advanta's managed receivables in the third quarter came from credit cards, officials insist selling the credit card portfolio is not "all or substantially all" of the company.
In a conference call to shareholders, analysts, and bondholders , Advanta chief financial officer David Wesselink said, "We're not anticipating at the current time that there would be any change" in the company's view.
"We continue to believe our debt will remain outstanding until it matures," Mr. Wesselink said. "After the deal closes, we'll be taking a look at the remaining balance sheet for Advanta Corp. ... If at that time we would elect to buy back some of the outstanding debt, (it would be) because it's in our best interest. At the current time, we don't contemplate doing anything along those lines."
Bondholders argue that the debt they now own is backed by a company so different from the one that issued the paper that a violation will occur if the proposed sale to Fleet goes through. Several different bondholders privately say they are considering lawsuits to halt the company's deal with Fleet, though as of Friday afternoon none had been filed.
Executives told analysts and bondholders in the conference call that they expect the new Advanta to earn $70 million in 1998 after it sells its credit card portfolio. They estimated that $60 million would be derived from its subprime mortgage business, and $10 million from its corporate credit and leasing units.
In a "preliminary proxy" filed with the Securities and Exchange Commission, Advanta said it plans to retain all 1,900 jobs affected by the sale to Fleet and pay its executives $5 million if the merger is completed.
Equity analysts found little to recommend in the new Advanta. J.P. Morgan & Co. analyst Michael Freudenstein downgraded its shares to "market perform" from "buy" after listening to the conference call. He did so because, he said, it is not clear how many shares the company will buy back in a tender offer related to the Fleet transaction - or at what price.
He added that the company is also entering the subprime mortgage business just when investor scrutiny of the sector has tightened.
In Friday trading, shares of investment bank Hambrecht & Quist Group fell $1.6875, to $43.3125. The San Francisco-based company, which posted a big gain Thursday, was reported on Friday to be in advanced negotiations to sell to Merrill Lynch & Co.
Hambrecht & Quist, which specializes in underwriting high-tech firms, has been the subject of takeover speculation for months. Its stock trades at 3.7 times book value or 27 times earnings - the same levels as a very strong commercial bank.
Although the brokerage is "trading beyond fair value," according to Michael Flanagan, an independent analyst in Philadelphia, Merrill could well pay more than market price.
