Shares digital

Buy-to-let mortgage lender Paragon (PAG) has opted for a rights issue ahead of the refinancing deadline for its £280 million working capital facility. The money had to be paid back to its existing bank lenders by 27 February, which are currently charging the London Inter-Bank Offer Rate (LIBOR), 6% at present, plus 90 basis points. In light of what has happened in the credit markets, analysts reckoned new bank facilities could go up to LIBOR plus 5%, clearly unfeasible since the buy-to-let mortgages Paragon has written will be accruing interest of much less than 11%. Hopes of more reasonable bank facilities have clearly not worked out, which is why the group is turning to existing investors for the cash. This is now crunch time for existing investors. If they don’t participate in the rights issue the value of their shares will be reduced to pennies given the dilution that will come with issuing 25 times the existing share base at a 90% discount to the current price.

Shares says: It will cost you £2.50 for each existing share to stave off the dilution but is it worth it? Probably not, given prospects for UK mortgage lenders. SK