BBC reports Paragon slumps on lifeline plan
BBC news reports that shares in UK buy-to-let mortgage lender Paragon have sunk 35% after the firm unveiled plans to raise £287m to head off a funding crisis. It is raising cash in a rights issue, where new shares are sold to existing investors, with shares priced at a 90% discount to Thursday's closing price.
Paragon said in November it may launch a rights issue after the credit crisis hit its normal sources of finance.
The money raised will repay banks who had provided a £280m credit facility.
The facility is due for repayment next month.
Shares in Paragon were trading down 36 pence, or 35%, at 66p in morning trade.
Credit crunch
Paragon - the UK's third-largest provider of buy-to-let mortgages - had previously raised funds largely through securitisation, under which it bundled up its loans and sold them on.
Ultimately the group's ability to grow in the future will be dictated by its ability to regain access to the ABS markets on commercially acceptable terms
However, since world's credit markets went into meltdown last year, the market for asset-backed securities (ABS) has dried up.
Northern Rock has been the most high-profile UK victim of this so far, but it has also caused big problems for Paragon.
Paragon said it believed that the UK buy-to-let market would continue to "offer attractive opportunities and returns for lenders" and that it would try to explore all funding possibilities to enable it to expand the business.
However, it warned that it may not succeed.
"Ultimately the group's ability to grow in the future will be dictated by its ability to regain access to the ABS markets on commercially acceptable terms," it said.
If it was not possible to begin lending again, Paragon said that it would run down its loan book and return money to its shareholders.
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