News update11 Jan 2008 11:56
LONDON (Thomson Financial) - Shares in buy-to-let lender Paragon Group of Companies were sharply lower midmorning after the company said it was raising 287 mln stg through a deeply discounted rights issue in order to plug a funding gap left by the credit crunch, and Landsbanki downgraded the stock to 'hold' from 'buy'.
At 11.05 am, Paragon shares were down 36-1/4 pence, or 35.5 pct, at 65-3/4 pence, about 90 pct lower than a year ago.
The rights issue has been fully underwritten by investment bank UBS. In reaction, Landsbanki said although the rights issue helped to remove the uncertainty, it was now assessing the likelihood of the group achieving further headroom for writing new business.
In other reaction, KBC Peel Hunt said it observed that the rights issue does not deal with problem of the lack of activity in the mortgage securitisation market.
It said it recommends shareholders prepare themselves to follow their money and take up their rights. However, it added that the best option for shareholders is to close Paragon to new business and put it in to run-off. The broker retained its 'buy' recommendation.