In its annual results, the buy-to-let lender admitted it would have to scale back its lending significantly to around 50 per cent of its first-half 2007 levels and it was struggling to renegotiate with major partners a £280 million drawing facility at a commercially viable rate.
It hoped to secure this sum from shareholders through a rights issue, but the future for the lender looks bleak.
A statement by the beleagured lender admitted that the current market conditions had forced the Group to look at its future sustainability in the sector, leading to its move to scale back its lending operations.
Its results statement said: “The present travails of the credit market coinciding with the expiry of our syndicated credit facilities have created uncertainties over the Group’s future funding in the near term. The prospects of the Group in the current year will depend substantially on the re-opening of the securitised funding markets to enable the Group to return to normal levels of writing new business. If we are unable to secure new warehouse facilities or alternative sources of access to the securitisation market, we will have to scale back new lending activities significantly and manage costs accordingly.”
The news sent Paragon’s share price plummeting, down at one point on Tuesday by 47 per cent, although by Thursday it had stabilised slightly.
Rumours have also started about a potential takeover of the company, with Credit Suisse saying in a trading note that Bradford & Bingley could be targeting them.
However, a spokesperson for Bradford & Bingley said it never commented on market speculation.
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