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Advanta Corp. has filed for Chapter 11 bankruptcy protection, and the Spring House, Pa.-based small-business credit card issuer says its banking unit may be turned over to regulators.
The lender sought court protection from creditors last week because Advanta will not be able to meet its obligations – even with almost $100 million in cash and equivalents on hand, according to the company.
Advanta's bank is not covered by the filing but may be put into a receivership run by the Federal Deposit Insurance Corp., the company said. "The economic debacle over the last two years devastated Advanta's small-business customers and Advanta itself," Dennis Alter, Advanta's chairman and CEO, said in a news release. Alter is waiving his salary and bonus during the bankruptcy process, the release said.
Advanta Bank Corp. currently is collecting its $2.7 billion portfolio of managed receivables from 360,000 customers, but the cards are not open to new charges. Bankruptcy proceedings will not have any impact on outstanding credit card balances and customer payment obligations will continue on normal schedules, according to the company.
Advanta, the 15th-biggest card issuer by purchase volume last year, said in August that it would dismiss about half its staff after write-offs more than doubled in June, to 56.95% of receivables. That was five times the industry average as measured by Fitch Ratings for that month, when the average charge-off rate at all credit card companies climbed to 10.79%.
Advanta listed assets of $363 million and debts of $331 million in Chapter 11 documents filed in U.S. Bankruptcy Court in Wilmington, Del. Weil, Gotshal & Manges LLP and Richards, Layton & Finger PA are providing legal counsel.
