Metris ( MXT), a credit-card lender with a shaky regulatory history, is bypassing Wall Street and going straight to the consumer to raise money for its corporate coffers.

The nation's 10th-largest card company, which posted a net loss in each of the last two quarters and has seen its stock lose 80% of its value this year, is buying radio spots in more than a dozen cities and taking out full-page newspaper ads hawking a $150 million unsecured note offering.

But the Metris notes, which haven't been reviewed by any major credit-rating agencies, look like a decidedly high-risk venture. That's because they take a backseat in priority of payment to all other Metris bondholders -- and if the firm runs into financial trouble, it could unilaterally suspend the scheduled interest and principal payments.

Ads for the bonds, which are being sold in amounts as small as $1,000 and pay annual yields up to 10.25%, have been running on two New York City radio stations. The ads, which tout the high-yield return, direct investors to a Web site to find out more about the note offering.

The offering comes at a time when credit-rating agencies are taking a dim view of Metris' other corporate notes. Moody's Investors Service, for instance, rates Metris' other unsecured bonds as four notches below investment grade, or essentially midlevel junk bond status. And Moody's has put the firm, which specializes in lending to consumers with poor credit histories, on a "credit watch" for a possible further downgrade of its unsecured bonds.

A spokesman for Metris didn't return several phone calls.

Other companies recently have been selling small-denomination bonds directly to individual investors, as a way to diversify their avenues for raising capital. For instance, Bank of America ( BAC), finance firm CIT Group ( CIT) and GE Capital, the financing arm of General Electric ( GE), have announced direct-to-investor corporate bond sales. But unlike Metris, those companies all carry an investment-grade credit rating on their corporate debt, and the bonds they are offering to retail investors all have been reviewed by at least one major credit rating agency. Also, the companies are relying on stockbrokers at major brokerage houses to sell the bonds, not mass-market advertising.

"It's a highly unusual move for marketing less than prime-rated paper," said Sean Egan, president of Egan-Jones Ratings, a small credit agency that doesn't currently have a rating on any of Metris' bonds.

But apparently it's not an unprecedented move, either. In the past, a handful of other companies, most of which also cater to the so-called subprime lending market, have used an aggressive marketing campaign to sell notes directly to individual investors. Some of those companies include auto lenders Onyx Acceptance ( ONYX) and Arcadia Financial, now a part of Citigroup ( C).

An official with Sumner Harrington, the small Minnesota brokerage firm that is managing the note offering for Metris, said companies like Metris rely on advertising to sell bonds to retail investors as an alternative to deploying a squad of brokerage firms to pitch the notes to their customers. Last year, Sumner managed a similar marketing strategy for Onyx, which offered $50 million in small-denomination notes to individual investors.

"This is an extremely passive approach," said Patrick Feit, Sumner's managing director. He said none of Sumner's brokers are making cold calls to potential investors to drum up business. All the potential buyers are lured in because of the ads and the information on the Web site.

A review of the Web site for the note offering is replete with the kind of caveats that should give all but the most speculative investor a reason to pause before buying. While Metris trumpets the potential for a 10.25% annual return on a 10-year note, it notes that "interest rates are determined at the time a note is purchased" and "certain note terms may not always be available." And unlike other debt notes, these Metris notes can't be resold by the buyer without the permission of Metris -- meaning an investor could get stuck with a lemon.

Additionally, Metris' business model is one that can create considerable financial turmoil, since most of its cardholders are consumers with bad borrowing habits and have a greater risk of defaulting on their debts. One reason Metris reported a $1.3 million net loss, or 19 cents a share, in the third quarter was due to higher loan losses on its credit-card portfolio.

And in the past year, Metris had a big run with bank regulators over the way it manages the risk of bad loans to consumers. In April, the company reached an agreement with Office of the Comptroller of the Currency to institute a new system for managing its so-called subprime loan portfolio, and those policies could lead to the company's taking in less in fees and finance charges in the future.

Indeed, sources familiar with the company's finances said the direct-to-investor bond offering smacks of desperation, and is an indication that Metris might have trouble raising financing through more conventional means.

That sounds like a big red flag.

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