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11 Jan, 2008


Published: 08:23 Friday 11 January 2008
By: Charlie Parker, Investment Editor

Embattled mortgage lender Paragon has been forced into an emergency rights issue in order to repay debt as it searches for an escape from its funding crisis, caused by the credit crunch.

Paragon, (PAG) the third largest buy-to-let lender in the UK, built its business on repackaging mortgages to sell on international markets and has struggled since the credit crunch to find buyers which has forced it to significantly limit new lending.

The move has almost halved the share price. The firm was trading at 55p, down 46.3% by 8.35am.

The issue, which is backed by UBS will raise some £287 million on a 25 for one basis. The move will be accompanied by a share consolidation on the basis of one new £1 share for every ten 10p shares.

The company sought to defend the quality of its asset base despite the need to rush for emergency finance claiming that it was fully match funded to maturity.

Yet the move will not allow Paragon to begin trading again at full power on its own. It said that it is still seeking new warehouse and working capital so that it can lend at its normal level.

The chairman of the company Robert Dench said that the rights issue is the only way to secure financial stability for the firm. ''The rights issue announced today provides Paragon with financial stability and secures the value inherent in the group today for its shareholders. The Board believes the rights issue will provide Paragon with a platform from which it can pursue further funding, so the company can return to writing significant volumes of profitable business when credit markets reopen.

'We are very grateful to our leading shareholders for the support they have shown the Group and its management during the recent period of uncertainty and look forward to the future with confidence.'

Few high profile fund managers have made their support for Paragon public though the shareholder register is littered with star managers such as Carl Stick through his Rathbone Income (Rathbone Income) fund and Andrew Brough through his Schroder UK Mid 250 (Schroder UK Mid 250 Inc) fund.

The managers have withstood significant financial loss from Paragon in recent weeks. The shares fell 40% in one day on 21 November when the prospects of a rights issue and the funding crisis was first raised by the firm.

       
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