UK mortgage lender to sell off loan assets

The UK's third-biggest buy-to-let mortgage lender is planning to sell off loan assets to stave off a funding crisis, it was reported today.

Specialist lender Paragon is looking at the sale of £140m (€194.1m) of car loans to avoid asking shareholders for £280m (€388.26m) in an emergency rights issue, the Sunday Telegraph reports.

Solihull-based Paragon warned investors last week that it faced funding uncertainties following the summer credit crunch, causing its share price to tumble.

The company has a £280m (€388.26m) corporate lending facility due for repayment next February, but the renewal terms offered by Paragon's banks are so poor following the debt squeeze that the lender has put investment bank UBS on stand-by to underwrite the emergency rights issue.

Its cash for new lending is also financed by a £2.3bn (€3.18bn) "warehousing" facility from a banking syndicate but if it fails to agree terms with the banks it will be forced to stop lending.

Paragon's other loan assets which could be sold include a £60m (€83.19bn) portfolio of unsecured loans and a £60m (€83.19bn) book of hire purchase lending agreements, the Sunday Telegraph says.

Fellow buy-to-let lender Bradford & Bingley sold £4.2bn (€5.8bn) of loans last week as it moved to boost cash reserves at a time of soaring wholesale funding costs.

The buy-to-let specialist will make a loss of between £15m (€20.7m) and £40m (€55.46m) on the sale of the two loan books, but it said the disposals will improve cash flow at a crucial stage.

Paragon, which was unavailable for comment, has no depositors and instead raises its funding by securitising - bundling up and selling on - its loans.

But since the summer crisis - sparked by slumping confidence in bonds based on high-risk US mortgages - the securitisation market has effectively closed as banks fearful of losses hoard cash.