"Delinquencies and default rates rose to all-time highs, reflecting... the deteriorating credit performance of small businesses," according to September data for small-business loans used as collateral for Advanta Corp. securities, analyst Scott Valentin of Friedman Billings Ramsey & Co. Inc. told clients in a note.
Defaults rose to 11.02% of Advanta's loan trusts, from 4.76% a year ago. Loss rates typically rise when the economy slows, not just because more people can't pay their bills, but also because small businesses stop expanding, so there are fewer new loans that haven't had time to go bad yet keeping the loss rate down.
The Spring House company isn't in serious danger -- "Advanta's liquidity and capital position can sustain the company" -- but financing costs will likely rise, the company won't be profitable until at least the second half of next year, and it should consider cutting its dividend, Valentin added.
Spokesman David Goodman said the company had no comment, pending its third-quarter earnings report Oct. 30. Despite weak credit markets, "we're in very good shape," CFO Philip Brown told analysts at a July 29 conference call, citing Advanta's cash and capital. Advanta Class B common stock has been trading below $4 a share, down from the one-year high of $27.33.
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