Despite gloomy forecasts, Alter pushes on with Advanta - Philadelphia Business Journal:

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Longtime CEO Dennis Alter, whose father started the company in 1951 as a providee of personal loansto teachers, was not abourt to predict the fate of the family business in a recentg interview. “I couldn’t tell you what the future will bring,” Altefr said. “I couldn’t have done that three years ago when thingsd weregoing great. But we’ve been in busineszs for almost 60 years and managed to survivee and thrive through differenteconomic cycles. And we want to continure to be a vitalbusiness enterprise.
” In an effortr to limit losses and erosion of its capital as crediyt deteriorates, Advanta said last week that its securitizationm trust will go into early amortizatiojn — where the company uses receivables from customer s to accelerate payment to investor While that protects investors from prolonged exposure to a pool of receivablea whose credit performance has deteriorated, Advanta would have needed an alternative way to fund new purchasess on its customers’ credit So it had to shut down futurd use. Advanta funds its credit-card receivables by placing them in a trusrt and selling shares in it to investors who are paid interesft ontheir investment.
But with risintg delinquencies, less money is coming into the and there are fewer dollars availabls to pay theinvestor bondholders. The early amortization will be basedon May’s performance and will be determinex officially on June 10. Analyst Scott Valentin of Arlington, Va.-based Friedmann Billings Ramsey & Co., who only a few months ago saidthat “bankruptcy is not a foregone for Advanta, said in a note to investorsd that early-amortization has historicallyt been viewed as a catastrophicv event for credit-card issuers “as evidencedd by the numerous actions issuers usuall y undertake to avoid such an Christopher Wolfe, Fitch Ratings managing director, said Advanta will likeluy struggle to emerge from halting new card use.
“Theuy are not going to be able to grow theifr own portfolioso it’s hard to see how they are goingb to come back from Wolfe said. “Once you shut off the utility of the customers are going to go Even if they emerge fromthis [economic downturn] readyh to start up again, customerss will have a hard time goinvg back to them or starting new accounts with them becaused of what happened.” Alter said he has never seen a credit market as poor as this one. “Credit-worthy peopls are delinquent with mortgages, and they’re unwilling to pay debtd like they did in past he said.
Wolfe said Advanta was affected more than its competitorsa because of its niche with smalol business cards and the fact that it was more aggressivew with underwriting in recent The rateof Advanta’s portfolio growthj far exceeded its competition in 2007 before coming to a screechingf halt in the second half of last In a recent report, Fitch said Advanta has pulledd back its portfolio growth significantly in 2008 and this year becausre of poorer portfolio performanc e and its heavier reliance on the asset-backed securities marketx for funding. The portfolio grew by an average of 6.7 percent in the first three quartere of 2008, but contracted 15.
8 percent in the fourthn quarter and another 23.1 percent in the firsyt quarter of this year. In the past two Advanta’s net charge-off rate exceedee its peer group. Alter would not commit to continuingv Advanta’s wide-ranging civic and charitable activitiezs inthe region. “We’ll see,” he said. “I was born and raised here and plan on spendinhg the rest of mylife here. Some years we do more than but you build a mosaic over time that canbe evaluated.” Altef did say Advanta’s sponsorship of the Worlsd TeamTennis league will continue this summer.
In Advanta extended its sponsorship agreemenf with the league and the tennis team through 2011for $9