Credit-card debt buyer maxes out

Creditrust seeks protection, fires over half its workers

Hunt Valley office closed

Nasdaq suspends trading in its shares after announcement

Bankruptcy

June 23, 2000|By Bill Atkinson | Bill Atkinson,SUN STAFF

Troubled Creditrust Corp. said yesterday that it filed for bankruptcy protection and disclosed that it had fired more than half its employees.

The Baltimore company, which collects and manages delinquent credit-card accounts, filed for reorganization late Wednesday under Chapter 11 in U.S. Bankruptcy Court in Baltimore, listing $116.3 million in assets and $27.6 million in liabilities.

Creditrust said none of its subsidiaries were included in the filing.

Creditrust, which makes money by purchasing delinquent credit-card accounts and collecting on them, has struggled for months to raise capital to pay debt and expand. It recently defaulted on a $20 million line of credit.

"We think that this is the really final step necessary for Creditrust to regain its footing and to continue to grow," said Joseph K. Rensin, Creditrust's chairman. "We are looking forward to continuing to grow in measurable and sustainable steps."

The bankruptcy petition will buy Creditrust time to work out of its problems, protect it from creditors' lawsuits, and enable it to negotiate the price it will pay for goods and services that it has already purchased.

Creditrust's board of directors approved the move Wednesday, Rensin said. A plan of reorganization will be filed soon, the chairman said, saying he expects the company to emerge from bankruptcy possibly before the year is out.

"We would like to be in and out of the proceeding as quickly as possible," he said. "We anticipate all of our creditors will be paid in full."

Trading of Creditrust shares, which are listed on the Nasdaq, was halted yesterday before the market opened.

Wayne Lee, a Nasdaq spokesman, said trading would resume after the company satisfied the stock exchange's request for additional information. Shares closed Wednesday at $1.3125 before the bankruptcy was announced.

Creditrust also disclosed yesterday that its lender, Sunrock Capital Corp., of Philadelphia, has agreed to lend the company an additional $5 million line of credit. The money can be used to buy credit-card portfolios or as a liquidity cushion, Rensin said.

"That is incredibly important," Rensin said. "When Sunrock agreed to provide this, it was a very big statement of their confidence behind our business plan."

Sunrock officials could not be reached for comment.

The company first ran into trouble in the fall when the bond market contracted, leaving it unable to sell a $100 million issue.

Its plight worsened about two months ago when Asset Guaranty Insurance Co. terminated the company's servicing rights on two pools of credit-card accounts, Rensin said.

Creditrust made $600,000 a month in fees by servicing those accounts.

"When this happened, we had to obviously downsize our staff because if you only have half of the accounts, you don't need all of those people," Rensin said. "We let a lot of very good people go."

He said the company cut 450 to 550 jobs over the past 60 days and now employs about 350 people.

Most of the firings occurred when Creditrust was forced to close its Hunt Valley operation. It has moved employees to two other Creditrust locations in the Baltimore area. The Hunt Valley facility was designed to house more than 2,000 employees.

Analysts said they had expected Creditrust to make some kind of move because of its problems. Although the company's first-quarter income grew, Creditrust has been unsuccessful in raising capital.

In addition, its stock, which hit a high of $34.125 on July 28, plunged to a low of 43.75 cents May 26.

"I am not surprised by the outcome," said Anna Dopkin, a financial services analyst at T. Rowe Price Associates Inc. of Baltimore. "It is certainly unfortunate to see that happen to a local company. It is just tough being a small, independent player."

John B. Keefe, an analyst at Ferris, Baker Watts Inc., believes that the company will emerge from bankruptcy.

"It seems to be workable ... and doesn't adversely impact shareholders," he said.

Creditrust grew rapidly since its founding in 1991. It has 2 million accounts that have a face value of about $5 billion.

Rensin said yesterday that the company had already made many of the tough decisions it needed to.

"We have absolutely no plans to reduce any further staff," Rensin said.

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