Some of Advanta Corp.'s bondholders are considering challenging the company's proposed sale of its credit card portfolio to Fleet Financial Group, people familiar with the situation said.

Bondholders may contest the transaction because they believe it violates a covenant in a $500 million, medium-term bond issued by Advanta last year, the sources said.

In that offering's prospectus, filed with the Securities and Exchange Commission July 8, 1996, Advanta said it would not "lease, sell, or transfer all or substantially all of its properties or assets to any corporation."

Critics claimed that Advanta would breach the covenant if it sells its credit card assets as planned. The issue may turn on Delaware's legal definition of "all or substantially all" of a corporation's assets.

"Bondholders are extremely upset with this deal," said one owner of the Advanta notes. "Several different holders have spoken to one another. They're all reviewing the documents, working with their internal counsels, and it wouldn't be incorrect to say legal action may be taken to prevent the sale."

The bondholders contend that Advanta's credit card business generates most of the cash used to pay its debts. Accordingly, selling the assets would jeopardize the company's ability to make payments on its unsecured bonds.

Advanta executives strongly disagreed.

"It doesn't violate it," said chief financial officer David D. Wesselink. There is no breach, he argued, because Advanta's credit card business does not constitute "all or substantially all" of its assets.

While Advanta has always been primarily known as a credit card company, Mr. Wesselink asserted that the firm's other lines of business, including subprime mortgage, leasing, and corporate credit, comprise enough of Advanta's business that bondholders have no legitimate complaint.

"This is a case where perception and reality are two different things," he said.

According to its 1996 annual report, about 79% of Advanta's $16 billion worth of managed receivables were attributable to its credit card business. But its beleaguered card business has shrunk steadily this year. At Sept. 30 it had slipped to 64% of managed receivables.

That drop in business might be just enough to protect Advanta's proposed deal with Fleet.

Lawyers who advise financial institutions on capital matters say that, in Delaware, where Advanta is legally organized, "all or substantially all" means two-thirds-or 66%-of a company's assets.

But bondholders don't buy the notion that Advanta is something other than a credit card company.

"If you look at their annual reports, or even their most recent 10Q (quarterly report to the SEC), the first thing they're talking about is their credit card business," one noteholder said.

The bonds in question were underwritten by Salomon Brothers, Credit Suisse First Boston, Donaldson, Lufkin & Jenrette, and Merrill Lynch.

Owners of the notes include Fidelity Management and Research, Standish, Ayer & Wood Inc., MFS Asset Management Inc., and Sears Investment Management Co.

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