Paragon seeks rights issue, shares plummet

Source: Exec Digital UK

Date :21/11/2007 09:14:30

Shares of Paragon plunged yesterday after the buy-to-let mortgage lender warned shareholders that the credit crunch could force it into a £280 million rights issue to stop it running out of funding.

Trading in Paragon shares was suspended on the London Stock Exchange after losing half their value, plummeting to 100 pence on the news that the lender needed to raise cash.

The stock closed down nearly 39 percent to 125 pence.

Unattractive rates

Paragon said it had conducted extensive discussions with lenders for the renewal of a 280 million pound revolving loan for working capital such as wage, provided by a syndicate of banks, which comes up for renewal at the end of February.

However, Paragon said yesterday that the syndicate had offered to continue lending at rates that are not attractive .It is believed they want interest of as much as five percentage points above the London interbank offered rate (Libor).

The company said that UBS, the Swiss bank, had agreed to underwrite a rights issue, to be completed by next February, if needed.

Collapse doubts

If the rights issue does not go ahead and the lender cannot raise money from elsewhere, Paragon, Britain's third-biggest buy-to-let lender, said that there was “significant doubt” about the company’s ability to continue as a going concern.

As a result, Nigel Terrington, Paragon chief executive, said the buy-to-let lender would cut lending and raise mortgage rates next year.

Paragon reported that full-year net profit fell 8.7 percent to £62.8 million as higher tax charges more than offset a ten percent gain in pretax operating profit.

November 21, 2007