Advanta Corp., the Spring House credit card company, is cancelling users' credit cards and paying some of its bond investors at a steep discount as it tries to conserve cash. Release here.
Bad news for bondholders: "Advanta Bank Corp. will use up to $1.4 billion to make a cash tender offer for Advanta Business Card Master Trust Class A senior notes at a price between 65% and 75% of their face value in a modified Dutch Auction.... Advanta Corp. will make a cash tender offer for any or all of the $100 million of 8.99% Capital Securities issued by Advanta Capital Trust I at 20% of their face value"
NEW: Is Advanta just the first card issuer to blow up? Says veteran card executive Jim Shanahan, ceo at prepaid-card provider Maverick Network Solutions in Wilmington:
"In this environment, there was no exit for Advanta. (Ceo) Dennis Alter would have sold it if he could. He had to shut it down.
"Advanta's a nationally visible brand. It's going to be seen as a leading indicator. The first one to fall.
"The industry is looking at charge-offs (bad loans) above 20 percent." That's what Treasury assumed when it stress-tested the banks. "Last time charge-offs peaked at 10 percent. It was like, 'Big, deal, we'll bounce back.' But if 20 percent is true, this is uncharted.
"Even (JPMorgan Chase & Co. ceo) Jamie Dimon was quoted saying credit cards are 'a conundrum.' If even Jamie Dimon can't see how to solve it, I'm glad we're in the prepaid business."