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02 Sep 1999
MOODY'S UPGRADES ADVANTA CORP.'S DEBT AND PREFERRED STOCK RATINGS (SENIOR UNSECURED TO B1); CONFIRMS ADVANTA NATIONAL BANK'S DEBT RATINGS; OUTLOOK IS STABLE
Moody's Investors Service today upgraded Advanta Corporation's (Advanta) debt and preferred stock ratings (senior unsecured to B1). In addition, the rating agency confirmed Advanta National Bank's (ANB) debt ratings (Deposits at Ba2). The outlook for Advanta's and ANB's ratings is stable.
Moody's said the upgrade of Advanta's ratings reflects the company's improving liquidity and cash flow from the company's consolidated operations. At the time Moody's downgraded Advanta's debt ratings in February 1998 following the company's sale of its credit card operations, Moody's highlighted its concerns with the very heavy debt burden at the parent company and its negative operating cash flow. Although cash on hand at the time was in excess of $400 million, it alone was not enough to satisfy the approximately $1.2 billion of debt that was scheduled to mature over the course of the next four years and fund the cash needs of its rapidly growing sub-prime mortgage operations.
However, since early 1998 Advanta has been able to significantly improve the operating cash flow of its sub-prime mortgage business, retire approximately $400 million of parent company debt, and maintain a healthy cash position at the holding company. Moody attributes the improvement in Advanta's liquidity and cash flow to the company's focus on reducing its wholesale loan purchase activities and sharply increasing loan originations from its direct channels. In addition, Advanta has focused on improving its lending margins rather than pursue very aggressive growth.
Although Advanta has significantly reduced its holding company debt load, it still had at June 30, 1999 $721 million of medium term notes that mature over the next 3 years. The company expects to meet its debt obligations with its approximately $437 million of cash equivalents and another $440 million of other investments that are scheduled to unwind over the next several years. Given the holding company's cash position and the liquidation of its other investments, Moody's believes Advanta should have adequate liquidity to meet its debt obligations over the near term. Going forward, the rating agency will be closely monitoring Advanta's liquidity position, particularly the value of its other investments, as the company works to meet its debt obligations.
Moody's said the confirmation of ANB's ratings reflect the bank's role as the principal origination and funding vehicle for Advanta's sub-prime home equity lending business. Liquidity at ANB is solid and the bank maintains "well capitalized" status under banking regulations, the rating agency added. However, Moody's believes the monoline nature of ANB's operations, currently modest cash flow, and the inherent risk of the bank's assets do not warrant an upgrade at this time.
In addition, Advanta has litigation pending with Fleet Financial Group related to the sale of ANB's credit card operations last year. While amounts at issue in this litigation are significant, the resolution should not adversely impact ANB's liquidity nor "well capitalized" status.
The following ratings were upgraded:
Advanta Corporation -- the rating for senior long-term debt to B1 from B2; the rating for junior subordinated long-term debt to B3 from Caa1; and the preferred stock rating to "b3" from "caa".
Advanta Capital Trust I -- the preferred stock rating to "b3" from "caa".
The following ratings were confirmed.
Advanta National Bank -- the rating of the bank for long-term deposits at Ba2; the rating of the bank for short-term deposits and other short-term senior obligations at Not Prime; the rating of the bank for other long-term senior obligations at Ba3; the rating of the bank's senior bank notes at Ba3; the ratings of the bank's subordinated bank notes at B1; the issuer rating at Ba3; and the bank's financial strength rating at E+.
Advanta, headquartered in Spring House, Pennsylvania, is a diversified financial services company that offers sub-prime home equity loans, business credit cards, equipment leasing, insurance, and deposit products. In addition, Advanta is one of the largest third party servicers of sub-prime home equity loans. The company has approximately $12.4 billion in managed assets and $9.4 billion in assets serviced for third parties.
No Related Data.
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