Bank of America/Merrill Lynch analysts said that, as expected the Advanta Business Card Master Trust experienced a considerable dip in its net default rate (from 60.81% in June to 23.68% in July).

The gross default rate, according to analysts, dipped 36.89 percentage points. Meanwhile the recovery rate rose by 0.24 percentage points.

BofA/Merrill analysts expect the charge-off rate will still be under pressure as a result of the weak economy as well as the expectation that cardholders are more likely to default now that their accounts have been closed.

Additionally, Advanta is reducing the number of employees by roughly 50%. This reduction will happen across all functional areas within the credit card firm. Analysts think the workforce reduction might affect the quality of servicing. They estimate the charge-off rate for the August collection to be of at least 25%.

The 30 to 59 days delinquency bucket rose  to 5.30% from 3.64%, while the 60 to 89 bucket increased to 2.63% from 2.38%. The 90 to 120 days bucket dipped from 2.10% to 2.00%.

According to BofA/Merrill, the collections of finance charges for the trust rose 1.92 percentage points to 19.34% from 17.42%. The trust no longer benefits from interchange. Analysts project finance charges to dip to the low-to-mid teen levels.

Taking into account the allocation of finance charge collections and the collection account's interest income, the noteholders' portfolio yield rose to 18.90% from 16.16%. The excess spread percentage stayed negative (negative 8.72% for July versus negative 44.42% for June), despite the higher portfolio yield and lower default rates. Finance charge collections were able to cover approximately 67% of default.

Because of this, the Class D experienced charge-offs of $11.2 million. The combination of this and last month's charge-offs reduced the Class D's aggregate investor interest to zero. The Class C notes saw charges-offs of $11.1 million; reducing the invested amount to $228.9 million from $240 million. As expected, the monthly payment rate declined from 14.93% to 7.27%.
BofA/Merrill analysts estimate the monthly payment rate to stay in the mid-to-high single digit levels. The trust allocates 100% of principal collections to noteholders, they noted. The factor for the Class A notes currently stands at 55%. The trust's receivable balance dipped 9% on a month-over-month basis.

Thus far, the market value of the trust's Class A notes has not changed from its pre-report release level of mid-$90s. The pre-release value for the Class B notes (mid-$40s) is expected to experience some weakness, as the delinquencies for the trust continue to increase.

Recently, the card firm swung to a 2Q09, which is its fourth straight, as deal volume fell 47% after Adavanta's decision in June to stop making new loans, according to published reports.

The reports said that the Advanta's Class B shares plunged 12% to 43 cents as charge-offs rose significantly and credit-loss provisions continued to increase. The credit card provider's stock is down 63% this year and traded over $30 in mid-2007.

The company's decision to stop extending new credit was one of the most extreme pullbacks in the credit card industry, according to the reports.

As the firm's capital erodes, Advanta, which is comparatively small player, has been cutting costs. Last month, the card company announced that it would remove roughly half of its work force, as mentioned above. This leaves  the company with roughly 200 workers. This elimination process happened after another round of layoffs earlier in 2009.

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