NEW YORK - (Business Wire) Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) and outstanding debt ratings of Advanta Corp. and Advanta Bank Corp. (collectively, Advanta) as follows.
Advanta Corp:
--Long-term IDR at 'BB-';
--Short-term IDR at 'B';
--Senior unsecured at 'BB-'
Advanta Bank Corp.
--Long-term IDR at 'BB-';
--Short-term IDR at 'B';
--Long-term deposits at 'BB'.
Advanta Capital Trust I
--Trust preferred stock at 'B'.
Fitch has also revised Advanta's Rating Outlook to Negative from Stable. Approximately $2.3 billion of debt and deposits is affected by this action.
The rating affirmation reflects Advanta's market position in the small business credit card industry, adequate risk-adjusted capitalization for the rating category, and ample balance sheet liquidity in the form of cash, fed funds, and available for sale securities. Rating constraints include the highly competitive small business credit card sector and the risks associated with a lack of revenue diversity and a monoline business focus.
The Negative Outlook reflects significant deterioration in portfolio credit quality and profitability resulting from weakening economic conditions and a general reduction in credit availability for cardholders. While a decline in managed receivables has reduced Advanta's funding needs in 2008, the shrinking portfolio has inflated loss metrics and contributed to reduced profitability. The cash flow generated from the shrinking portfolio, however, should allow the company to refinance maturing asset-backed securities (ABS) debt on-balance sheet, thereby reducing its need to access the capital markets over the intermediate-term. Balance sheet liquidity, defined as cash, fed funds sold, and available for sale securities, amounted to approximately $1.8 billion as of Sept. 30, 2008, or approximately 23% of managed assets.
Fitch does not believe Advanta will pursue third-party capital injections or an acquisition, but expects Advanta to maintain its operating independence, given its family-owned, dual-class structure. Negative rating action could result from continued asset quality deterioration, a reduction in regulatory capital ratios, and/or a failure to return to sustained profitability within the outlook period.
Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.
Fitch Ratings
Meghan Crowe, CFA, 212-908-9121
Christopher D. Wolfe, 212-908-0771 (New York)
Media Relations:
Tyrene Frederick-Mack, 212-908-0540 (New York)
tyrene.frederick-mack@fitchratings.com
