The rating agency based the downgrade on the initiation of a tender offer for all $100 million of the firm's 8.99% trust preferred securities at 20% of face value. Fitch considers the transaction to be a coercive debt exchange according to its 'Coercive Debt Exchange Criteria'.
Last April, Advanta deferred its semi-annual interest payments on the trust preferred securities. Investors who do not participate in the tender offer could face even worse recovery prospects in the event of liquidation, according to Fitch.
The rating on Advanta Corp. has also been removed from Rating Watch Negative and carries neither a Rating Outlook nor Watch