Advanta to Liquidate Assets as Part of Chapter 11 Filing
Advanta Corp., a well-known issuer of credit cards to small businesses, on Monday announced it is planning to liquidate company assets as part of its Chapter 11 bankruptcy protection filing.
According to a company statement, Advanta said it expects no assets will be left for common or preferred shareholders during liquidation. It did not comment on its impact to the company’s future.
The company further said it plans to achieve the best value for creditors under its Chapter 11 plan, which also includes establishment of a trust that will retain certain assents unfit for liquidation.
Its banking subsidiary, the Utah-based Advanta Bank, also disclosed ongoing talks with regulators to return deposits to customers. The bank, however, was not included in the Chapter 11 filing. According to a statement released in November, Advanta said, “The Chapter 11 proceeding will not have any impact on outstanding credit card balances and customer payment obligations will continue on normal schedules.”
Advanta filed its Chapter 11 case in November last year, a month after closing its credit card operations, before the US Bankruptcy Court in Wilmington, Del. The court has schedules hearings on February 4 on the company’s bank accounts and payroll.
“The economic debacle over the last two years devastated Advanta’s small business customers and Advanta itself,” the company’s chairman and CEO Dennis Alter said in a statement.
Advanta’s credit card business was directed at small businesses, which uses the service as a way to bankroll capital. These credit cards have been a popular mode of financing for small business owners.
Through mid-2009, around a third of small businesses had credit lines slashed. This led to a weakening in Advanta’s niche position, and eventually its bankruptcy.
Advanta’s shutdown is considered one of the most dramatic closures in the credit card industry, which had been hit with huge default and delinquency rates. Overall, Advanta is considered a small player with outstanding card loans amounting to $5 billion compared to big players, such as JP Morgan Chase, which posted $176 billion in March last year.
Its small business niche led to its vulnerability to the recession, with delinquent accounts rising to about 16% of its first quarter outstanding loans. Other small business card issuers, such as American Express, only had half of Advanta’s default rate.
Advanta stopped issuing new credit cards in May. Since then, the company merely collected outstanding balances from its 360,000 accounts, totaling $2.7 billion, and paid creditors and noteholders.
The company started in 1951 as a business granting personal loans to teachers. It had since shifted to offering credit cards to small businesses.
