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Rating Action:

MOODY'S PLACES ON REVIEW FOR POSSIBLE DOWNGRADE RATINGS OF ADVANTA CORP (SENIOR AT B1) AND ADVANTA NATIONAL BANK (DEPOSITS AT Ba2)

31 Jul 2000
MOODY'S PLACES ON REVIEW FOR POSSIBLE DOWNGRADE RATINGS OF ADVANTA CORP (SENIOR AT B1) AND ADVANTA NATIONAL BANK (DEPOSITS AT Ba2)

Approximately $3.4 Billion of Debt Affected

New York, July 31, 2000 -- Moody's Investors Service placed all credit ratings of Advanta Corporation (Advanta)(senior at B1), Advanta National Bank (ANB)(deposits at Ba2) on review for possible downgrade. The rating review will focus on two main issues, according to Moody's. Moody's will consider the extent to which recent regulatory actions may affect Advanta's access to capital markets and its funding costs, which could affect its core profitability. Moody's will also review the credit quality of Advanta's portfolios, particularly its mortgage portfolios, to determine whether the company's asset quality has deteriorated on a longer-term basis.

Advanta generates positive cash flow, Moody's noted, and the company has adequate liquidity.

In May 2000, Moody's placed the credit ratings of Advanta and ANB on review, direction uncertain, after the company announced that it was exploring strategic options for its mortgage and leasing operations. The mortgage operation accounts for about 50% of Advanta's earnings and 80% of its managed assets. The review for direction uncertain reflected the major shift in strategic direction at the company, Moody's said, as well as the broad range of options for possible use of the proceeds of any sale.

In May 2000 the Office of the Comptroller of the Currency (the OCC) and ANB concluded an agreement which restricted the bank's ability to issue brokered deposits. Deposits are a significant component of Advanta's overall funding mix. Pursuant to discussions related to that agreement, ANB has now reached additional agreements regarding the assumptions it will use in calculating the value of its retained interests in securitizations and its allowance for loan losses.

The OCC has stressed in various public announcements that its examiners are focusing more on potential risks for subprime lenders in general and it is increasing the regulatory capital requirements for such lenders, Moody's said. The changes in assumptions announced today by Advanta may not affect the underlying economics of Advanta's businesses, Moody's added. However, the rating agency said, the increased regulatory scrutiny and higher capital requirements may increase the company's funding costs, which could affect the company's core profitability.

For the last several quarters Advanta has experienced a rise in nonperformers and charge-offs in its mortgage lending and leasing operations, Moody's said. The review will seek to clarify whether these trends reflect a long-term deterioration in credit quality or other factors.

The following ratings are affected:

Advanta Corporation-B1 unsecured senior debt; (P) B1 senior shelf; B2 subordinated debt; (P) B2 subordinated shelf; B3 junior subordinated debt; (P) "b3" preferred shelf

Advanta National Bank-Ba2 long-term bank deposits; Ba3 other senior obligations; Ba3 issuer rating; Ba3 senior unsecured bank notes; B1 subordinated bank notes; B1 subordinated debt; E+ bank financial strength rating

Advanta Capital Trust I-"b3" preferred stock

Advanta Capital L.L.C. -(P) "b2" preferred shelf

Advanta National Bank's ratings for short-term obligations are not-prime and are therefore not affected.

Advanta Corporation, based in Horsham, Pa., has approximately $13 billion in managed assets.

New York
Edward Young
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

New York
Ryan O'Connell
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: (212) 553-0376
SUBSCRIBERS: (212) 553-1653

No Related Data.
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