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Rating Action:

MOODY'S DOWNGRADES RATINGS OF ADVANTA CORPORATION (SENIOR TO Ba3) AND ADVANTA NATIONAL BANK (DEPOSITS TO Baa3), ALSO KEEPS RATINGS ON REVIEW FOR POSSIBLE DOWNGRADE

28 Oct 1997
MOODY'S DOWNGRADES RATINGS OF ADVANTA CORPORATION (SENIOR TO Ba3) AND ADVANTA NATIONAL BANK (DEPOSITS TO Baa3), ALSO KEEPS RATINGS ON REVIEW FOR POSSIBLE DOWNGRADE New York, 10-28-97 -- Moody's Investors Service today lowered the ratings of Advanta Corporation and placed the ratings on review for possible further downgrade. The rating agency's actions follow today's announcement by Advanta that it has reached a definitive agreement to sell its consumer credit card business to Fleet Financial Group. As a part of that transaction, the existing debt and wholesale deposits of Advanta National Bank USA will be assumed by Fleet National Bank. The debt securities to be assumed were placed on review for possible upgrade.
Moody's said that the downgrade reflects the negative credit impact the sale has on the diversification and quality of the company's earnings, as well as the lower franchise value of the remaining businesses. While Advanta will realize a premium on the sale, that premium and a significant amount of the capital previously allocated to the credit card operations will be returned to shareholders, Moody's said. Nonetheless, the company's leverage should improve modestly. Following the sale Advanta will continue principally as a sub-prime mortgage lender, and to a lesser extent as a small business lender. Advanta is one of the larger sub-prime mortgage lenders and servicers in the country, Moody's noted. However, both sub-prime mortgage and small business lending remain highly fragmented and extremely competitive businesses, and in neither business does Advanta have a dominant market share. In addition, the sub-prime mortgage industry has come under considerable stress lately due to deteriorating credit quality and higher pre-payments. Advanta will continue to rely heavily upon securitization for its funding, Moody's said, and going forward a significantly greater portion of its earnings will be dependent upon non-cash income from gain-on-sale accounting.
Moody's said the review of Advanta will focus on the financials and franchise value of Advanta's remaining businesses, both of which have experienced very rapid growth over the past year. The review will also consider Advanta's future capital and funding plans.
At the same time, Moody's also place the ratings on the existing senior notes and subordinated debt of Advanta National Bank USA on review for possible upgrade. This debt will be assumed by Fleet National Bank in connection with the sale of the credit card business. In a separate ratings action, Moody's today confirmed the ratings of Fleet Financial Group, Inc. (Senior at A2) and Fleet National Bank (Deposits at A1).
The following ratings were lowered and placed on review for possible downgrade:
Advanta Corporation -- the rating for senior long-term debt to Ba3 from Ba2; the rating for subordinated long-term debt to B1 from Ba3; the rating for junior subordinated long-term debt to B2 from B1; and the preferred stock rating to "b2" from "b1".
Advanta Capital Trust I -- the preferred stock rating to "b2" from "b1".
Advanta National Bank USA -- the rating of the bank for long-term deposits to Baa3 from Baa2; the rating of the bank for other long-term senior obligations to Ba1 from Baa3; the rating of the bank's medium-term bank note program to Ba1 from Baa3; and the counterparty rating to Ba1 from Baa3.
The following ratings were placed on review for possible downgrade:
Advanta National Bank USA -- the rating of the bank for short-term deposits and other short-term senior obligations of Prime-3; and the bank financial strength rating of D.
The following ratings were placed on review for possible upgrade:
Advanta National Bank USA – the ratings of the bank's senior bank notes of Baa3; and the ratings of the bank's subordinated notes of Ba1.
Advanta Corporation, headquartered in Spring House, Pennsylvania, had assets of $6.7 billion and managed assets of $20.8 billion at September 30, 1997. On a pro forma basis following the sale of its credit card operations, managed assets will be $8.4 billion.

No Related Data.
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