Debts put Creditrust in danger; Credit-card servicer misses payments, can't secure loan; Company may not survive; Baltimore company considers cutting jobs, other expenses


Troubled Creditrust Corp., which has struggled unsuccessfully for months to raise needed funds to pay debt, said yesterday that its financial plight could raise doubts about its survival.

In a regulatory filing, the company said its failure to get additional financing or sell assets had caused it to miss debt payments, putting it in default of its loan agreements.

"The company's default ... and other defaults and occurrences ... may raise doubt about the company's ability to continue as a going concern," Creditrust said in its regular quarterly filing with the Securities and Exchange Commission. The company also said recent events, including the loss of a servicing agreement, would affect its future operations and liquidity.

The Baltimore-based company, which collects and manages delinquent credit-card accounts, said that it was evaluating steps to stabilize the company, including cutting about 900 jobs, reducing other expenses and selling assets.

Creditrust said its default on a $20 million line of credit from Sunrock Capital Corp. of Philadelphia entitled the lender to "accelerate" the loan, something it has not done so far.

The company said it was negotiating with its lenders and investors and had hired an outside consulting firm, which it did not identify.

Derek Derman, an analyst at Wedbush Morgan Securities in Los Angeles, was pessimistic about the chances for the company's survival.

"I don't believe they are good," he said yesterday. "I think the stock price reflects that."

Creditrust's shares closed yesterday at 62.50 cents, down 3.13 cents, after reaching a high of $34.125 about 10 months ago.

Anna Dopkin, a financial services analyst at T. Rowe Price Associates Inc. in Baltimore, said many independent companies that collect delinquent loans have struggled.

"Most specialty finance companies, when they get to this stage, it is pretty hard for them to recover," she said. "Their access to funding ... is pretty limited, making it more difficult to find attractive funding for their growth initiatives."

Creditrust's chairman and chief executive, Joseph K. Rensin, did not return phone calls. A Sunrock executive declined to comment.

First-quarter report

Creditrust also released its first-quarter results, which were delayed for several days, yesterday.

The company made $2.6 million, or 25 cents per diluted share, in the three months that ended March 31, compared with profit of $2.4 million, or 28 cents per fully diluted share, in the corresponding period in 1999.

Revenue in the quarter jumped 79 percent to $21.5 million, compared with $12 million in the corresponding 1999 period.

Earnings from operations rose 59 percent to $7 million. Collections on managed receivables nearly doubled to $25.5 million in the first quarter, compared with the corresponding period a year earlier.

"The positive results of the first quarter are no indication of what their outlook looks like going forward," Derman said.

He said that the company is unable to "purchase new receivables" - delinquent credit-card portfolios - that it can collect on and make money.

"They are in default, they are not able to pay off their outstanding debt," he said.

"When you don't have enough to pay off existing debt holders, you are not going to spend more money" to buy more credit-card receivables, Derman said.

Creditrust, which was founded in 1991, has grown rapidly and manages more than 2 million accounts with a face value of $4.9 billion.

It operates from three facilities, two in Baltimore and a third in Cockeysville, which combined can accommodate more than 2,500 employees.

But Creditrust has been struggling for months to finance its operations, and it has been beset by numerous problems.

Trouble with insurer

In April, the company was notified by its bond insurer, Asset Guaranty Insurance Co., that it was terminating Creditrust's servicing rights on two of three securitizations, according to the SEC filing.

Creditrust's servicing fees on the two transactions were about $600,000 a month.

The same month, Creditrust sued Asset Guaranty, its parent, Enhanced Financial Services, and an EFS company executive, seeking $520 million in compensatory and punitive damages. Creditrust alleges that the executive secretly posted "maliciously false and disparaging statements about the company on the Yahoo! message board."

In March, Creditrust's bid to raise $55 million in a badly needed loan failed.

The company hired Goldman, Sachs & Co. in December to advise it on finding a partner to buy a portion of the company.

The move came several days after Standard & Poor's withdrew Creditrust's "above average" ranking as a credit-card servicer, after disclosure that an employee of the company had misdirected $500,000. The money was recovered at no loss to Creditrust.

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