Shares in Paragon, one of Britain’s biggest buy-to-let lenders, fell 40% after it warned it might have to suspend lending to new borrowers because of 'deep turmoil' in the credit market. Financial Times, The Times, Daily Telegraph, Independent, Guardian
It said it was planning to raise £280m from investors if necessary because the corporate loans it normally used have become more expensive. If conditions worsened, it said it might have to stop lending to new borrowers by the end of February, though this was 'unlikely'.
Despite parallels with Northern Rock as both raise funds in the wholesale market, chief executive Nigel Terrington insisted the lender would not need a state bailout. 'We can’t envisage any need for that,' he said.
Instead Paragon’s own shareholders have agreed to support the lender with a £280m rights issue, if required. UBS has underwritten the placing and Terrington said existing shareholders have signed on as sub-underwriters.
Paragon’s final dividend has been cancelled because 'it would be inappropriate to return any capital until a refinancing has been completed'. It will be reconsidered 'once the funding position is clarified'.
Shareholders have agreed to step in because a £280m revolving facility for working capital such as wages comes up for renewal on February 27. Paragon’s banks are demanding terms that 'are not attractive'. It is believed they want interest of as much as five percentage points above the London inter bank offered rate.