Following a debut private placement last week, Advanta Corp. is looking to hit the public term market with a new product line, the small business credit card, pending the review of the S-3 filed with the Securities and Exchange Commission, said Michael Coco, director of securitization at Advanta.
If the SEC chooses not to review the filing, Advanta could come to market sometime this quarter with a deal in the $400 million range, Coco said. The deal will be a senior/subordinate, owner trust note structure, with A-, B-, and C-class tranches. A lead manager has yet to be determined.
Though Coco wouldn't comment on the terms of last week's private placement, he did say it was well received by investors.
Small business credit cards differ from small business loans in a number of ways, and more closely resemble consumer credit cards.
Apart from the fact that small business credit cards are unsecured (where small business loans are generally secured against property), the average balance on the loans are substantially smaller.
For example, in a typical portfolio of small business loans, average loan balance might be in $750 thousand range, according to a source working in the sector.
In Advanta's portfolio of small business credit cards, the average borrower balance is just $4,200.
A consideration from a ratings point of view is that the small business credit card is based on the credit of the obligor and not underwritten based on the performance of the business, said Bonnie Lee Tillen, a director at Standards & Poor's.
As for collateral performance, it's somewhat difficult to predict, because the product has been originated on a smaller scale, and oftentimes blended in with the origination of the regular consumer cards, so it's more difficult to look at it statistically, Tillen said.
"Further, the small business card hasn't really seen the effects of competition, or been test in downturn in the economy," said Bonnie
Until the product evolves, it's really and case by case situation.
As for Advanta, the small business card portfolio has performed somewhat better than the consumer card portfolio. Over half of the loans included in the portfolio have been on the books for more than two years.
"Generically speaking it has above average yield, above average payment rate, and slightly below average loss rate," Coco said.
Currently Advanta is holding roughly a $1 billion portfolio, and expects it to grow between 30% and 50% this year.
As for the product in general, growth is anticipated from other issuers this year. MasterCard recently added incentives that would give the small business borrower benefits similar to those that larger corporations receive on their accounts.
"Further, given the strong economy and a growing population bitten by the entrepreneurial bug, there is probably more of a demand and need for this kind of a product than before," Tillen added. "More people are working at home and with the technology today, people are able to start up businesses more easily."