Advanta note holders have a difficult choice to make [The Philadelphia Inquirer]

Sept. 22--Investors who bought notes from Advanta Corp. before the Montgomery County credit card company filed for bankruptcy last November have been forced into a nerve-racking gamble.

Do they take an offer to sell their notes to professional investors who specialize in bankruptcies, for up to 60 cents on the dollar, or do they wait -- betting they will get more out of the ultimate bankruptcy settlement?

Jim Foster of Audubon, Montgomery County, considered the 60 percent offer from Liquidity Solutions Inc., of Hackensack, N.J.

"This sounds pretty good," he said Monday in an e-mail. "I do not need the cash in the near future, but if I reinvest this money, I can start to get a return on it, hopefully."

But later that day, after studying the offer more carefully, he had doubts. "This disclaimer here kind of scares me," he said on the telephone, referring to three pages of legalese, "so I'm probably going to wait it out."

Foster and more than 3,000 other mostly individual investors might not have to wait much longer to get a rough sense of how much they will receive of the $135.7 million they are owed.

Advanta said Sept. 3 that its liquidation plan was "at an advanced stage" of preparation and should be filed with the Bankruptcy Court in Wilmington by the end of October.

The plan will provide guidance on how much money unsecured note holders such as Foster can expect to receive.

Howard A. Cohen, a lawyer at Drinker, Biddle & Reath L.L.P representing the unsecured creditors' committee, did not respond Wednesday to questions by e-mail or voice mail.

Anticipation of the imminent filing of a liquidation plan and Advanta's settlement last month of a dispute with the Federal Deposit Insurance Corp. apparently spurred a flurry of buyout offers to retail note holders.

Since July, the value of the offers has jumped to as much as 60 percent, or $6,000 for a $10,000 note, from about 35 percent, according to letters sent to investors and shown to The Inquirer.

The FDIC settlement, approved by U.S. Bankruptcy Judge Kevin J. Carey on Sept. 7, was a significant development. Under the settlement, more than $200 million in FDIC claims related to Advanta's shuttered bank subsidiary in Utah were reduced. Either the FDIC will have a $50 million claim against Advanta, or the company will get as much as $5.4 million.

In another positive development for Advanta note holders, the company, now in Plymouth Meeting, received court approval to dissolve an inactive insurance subsidiary that has $5.5 million in assets and no liabilities. Whatever remains will flow to Advanta, which had $107 million in cash as of July 31, according to Advanta's latest monthly operating report.

Those reports provide the only public glimpse of Advanta's finances since its bankruptcy petition, but they are not detailed, making it hard to draw firm conclusions.

Heartening for note holders is the $6 million increase in Advanta's cash holdings from $101 million on the bankruptcy filing date.

Since then, the company has received $15.8 million in cash from its defunct credit card business, offsetting expenses, which included $6.3 million on salaries for Advanta employees and $6.9 million for law firms and other professionals. Advanta's balance sheet still showed $24.6 million in such receivables at the end of July.

Advanta, which provided credit cards to small businesses, funded its operations in part by selling notes to investors. As borrowers defaulted on their cards during the recession and Advanta increased interest rates, it suspended operations in May 2009.

The 60 percent offer from Liquidity Solutions assumes Advanta will have at least $81 million to repay note holders. The company obviously expects to get more out of the bankruptcy process.

Reached Wednesday, Gerald Jospitre, who signed Liquidity Solutions' letters to numerous investors, said he could not comment.

Contact staff writer Harold Brubaker at 215-854-4651 or [email protected].

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