Advanta's troubles culminate in Chapter 11

Sam Truell, a retired Chester policeman, has been supplementing his pension with monthly income from Advanta investment notes.

"It helps me along quite a bit," Truell, who has been living off his retirement income for 17 years, said yesterday.

But Advanta Corp.'s weekend bankruptcy filing in Delaware is snatching away that extra income, leaving Truell and thousands of other retail investors with gaping holes in their budgets.

Bankruptcy court will now determine the amount and timing of any further payments. Even before its bankruptcy, the Spring House, Montgomery County, credit-card lender had basically shut down its operations: It froze the accounts of all its customers, which are small businesses, because of soaring defaults.

Advanta listed assets of $363 million and debts of $331 million in its Chapter 11 bankruptcy petition.

It filed for protection because it will not be able to meet long-term obligations, such as the $138 million owed to Truell and other retail noteholders. The company said it had $100 million in cash and equivalents on hand.

The trip to bankruptcy court was expected to maximize payments to Advanta's 3,850 noteholders, often older people attracted to the uninsured note by interest rates that were higher than those available from certificates of deposits. On a five-year note, Advanta was paying between 5.59 percent and 10.89 percent; a five-year CD currently averages 2.14 percent, according to Bankrate.com.

Advanta expanded its lending operation extremely fast during the economic boom earlier this decade, but the business crashed in 2007 when the U.S. economy entered its deepest and broadest slump since the 1930s.

That deterioration has forced Advanta, long a high-profile sponsor of blockbuster exhibits at the Philadelphia Museum of Art and of women's professional tennis, into a fight for its life. The company has slashed its workforce this year from about 900 to fewer than 200.

The bankruptcy filing does not include Advanta Bank Corp., the company's main operating subsidiary. But Advanta said the Utah-based bank, which lost $315 million in the first nine months of this year, compared with a profit of $21 million in the same period last year, may be turned over to a Federal Deposit Insurance Corp. receivership.

The bank, which had $2.1 billion of insured deposits at the end of September, has been in difficult negotiations with the FDIC at least since the spring. A key ratio at the bank was 3.73 at the end of September, below the 5 percent required by regulators.

The bank had been among the largest issuers of small-business credit cards and is trying to collect $2.7 billion in credit-card charges from 360,000 customers.

Advanta said the FDIC's rejection of a second plan to improve Advanta Bank's financial position precipitated the bankruptcy filing late Sunday.