Advanta Corp. said on Wednesday that FleetBoston Financial Corp.s latest lawsuit against the Spring House, Pa., company has no merit and is just an extension of a suit filed in 1999, which Advanta is contesting.
FleetBoston Financial Corp., which bought Advantas $10.5 billion-asset consumer credit card business in 1998, sued last week to block the pending sale of Advantas mortgage unit to Chase Manhattan Mortgage Corp., a subsidiary of J.P. Morgan Chase & Co.
Fleet claims that Advanta still owes $140 million under a contribution agreement made when it sold the card portfolio to Fleet Financial Group (which later merged with BankBoston Corp. to form FleetBoston).
The agreement requires Advanta, if it sells all or substantially all of its assets within six years of Feb. 20, 1998 when the Fleet deal closed to assign its obligations under the Fleet agreement to the buyer of the assets.
Fleet asserts that Advanta will lose 80% of its managed receivables in the mortgage unit deal, which includes no provision assigning Advantas Fleet obligations to Chase Manhattan Mortgage.
In fact, the agreement explicitly states that neither Chase nor its affiliates assumes any liability for acts or omissions or alleged acts or omissions of Advanta or its affiliates on or prior to the date on which the Advanta/Chase deal closes, the suit says.
Fleet specifically bargained for protection in the contribution agreement against what Advanta is here attempting: the wholesale transfer of substantially all of its business to a third party without concomitant assignment of its obligations to Fleet to the third party, according to the lawsuit.
A spokeswoman for Advanta said on Wednesday that the mortgage business is no more than one-third of the companys assets.
Were engaged in ongoing, protracted litigation with them, and we really feel that this is just a tactic Fleet is trying to use to gain additional leverage in their ongoing litigation, she said. We dont expect it will be any impediment to closing the deal with Chase during the first quarter, as we had anticipated.
In addition to the mortgage unit, Advanta owns a $2 billion-asset small-business card unit and an $800 million-asset leasing business.
Further, according to the companys quarterly conference call in November, its mortgage unit makes up no more than 30% of the $3.3 billion-asset company.
Calls to Fleet for comment were not returned.
The Fleet deal boosted Advantas earnings in 1998 but has also brought its share of trouble. Several bondholders charged that the deal violated Advantas debt covenant, which stated it would not sell all or substantially all of its assets.
In a $141 million suit filed in early 1999, Fleet charged that Advanta had misappropriated funds and misrepresented the condition of its portfolio. Advanta countersued for $101 million. These suits are scheduled to come to trial this summer.
Advanta had hoped that the Chase Manhattan Mortgage deal would bring to an end a yearlong cacophony of uncertainty.
In August the company announced that it had settled several disputes with federal regulators about its banking subsidiaries and agreed to write off $214 million of retained interests in mortgage securitizations; this caused a $192.7 million second quarter loss. The writeoff consumed about half of Advanta Nationals capital and reduced the parents by one-third.
After the settlements, Advanta officials remained upbeat about the companys future. Last summer they announced plans to jettison the troubled mortgage unit and focus on the small-business card division, which they call Advantas jewel.
After two months of negotiations, Advanta announced on Jan. 8 that Chase Manhattan Mortgage had agreed to buy the operation for roughly $1.6 billion. The deal is still awaiting approval by Advantas shareholders.
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