Small business credit card lender Advanta Corp. has filed for Chapter 11 bankruptcy protection.
Its shares plunged more than 70 percent in midday trading Monday, dropping 25 cents to 8 cents. Earlier in the session, the stock hit an all-time low of 7.5 cents.
The filing late Sunday at U.S. Bankruptcy Court in Delaware comes five months after the company said it was shutting down its credit card lending business in a last-ditch effort to preserve cash as loan losses mounted.
The Spring House, Pa., company said it has nearly $100 million in cash on hand, but that would not be enough to meet its debt obligations over time. In its filing, the company listed total assets of $363 million and total debts of $331 million.
Advanta is the holding company of Advanta Bank Corp., which is not included in the bankruptcy filing. The bankruptcy will not have any impact on Advanta Bank's outstanding credit card balances and customer payments will continue on normal schedules, the company said. Advanta Bank is currently collecting $2.7 billion in outstanding balances from 360,000 customers. As of June, the credit card accounts were closed to new charges.
Advanta Bank's capital levels, however, are below regulatory requirements. The company said it could be shut down by regulators and turned over to the Federal Deposit Insurance Corp.
Advanta was hit hard by the credit crisis and resulting recession, as its small-business customers struggled to pay off their debts and saddled the company with hefty loan losses.
In July, Advanta said it was laying off half its work force, leaving the company with less than 200 employees.
"The economic debacle over the last two years devastated Advanta's small business customers and Advanta itself," said Chairman and CEO Dennis Alter in a statement. Alter is waiving his salary and bonus during the reorganization process.
Advanta said it has about $138 million of senior retail investment notes outstanding. The bankruptcy filing should help preserve the value of Advanta's assets and maximize what the holders of the retail notes are able to recover.
Bank of New York Mellon, trustee for holders of more than $230 million in debt, is the company's largest unsecured creditor.