Paragon gets 290 mln lifeline

LONDON (Reuters) - Mortgage bank Paragon (PARA.L) said on Thursday it had raised almost 290 million pounds in the equity market, thanks to a 90 percent take-up rate for its deeply discounted share issue.

Paragon, which announced a 25-for-1 rights issue at a discount rate of 90 percent last month, was the first UK bank to tap shareholders for cash after the credit crunch left it unable to secure financing.

British's third-biggest provider of mortgages on property to be rented out said in a statement it had received valid acceptances for 90 percent of the stock offered to shareholders at 100p, and later said investment bank UBS (UBSN.VX), the underwriter of the deal, had found subscribers for the remaining shares at 102p.

Big UK fund houses had taken the rights and put in new money in the buy-to-let mortgage lender.

"Although the marginal trading was running around and getting worried about mortgages, getting worried about what happened to Northern Rock, the core of investors understood the quality of the underlying book and were prepared to put 2.5 times of their money into it to refinance the company," a person close to the deal said.

The British lender now has only 120 million pounds of debt due in 2017. Analysts expect Paragon to be in a net cash position next year. Its assets are mostly cash or mortgages with underlying rental stream and an average loan-to-value ratio at 66 percent.

Paragon shares rose as much as 9.3 percent on Thursday to trade at 111.5p each, representing a 43 percent discount to their net asset value of 197p each.

The shares, which traded at over 1081p at their January 2007 peak, hit lows of 78.7p last month.

Paragon expects to continue lending, but has said it may be unable to do so if difficult funding conditions persist.