The UK's third biggest buy-to-let mortgage lender is planning to sell off loan assets to stave off a funding crisis, it has been claimed.
Specialist lender Paragon is looking at the sale of £140 million of car loans to avoid asking shareholders for £280 million in an emergency rights issue.
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 £280 million 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 £2.3 billion "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 £60 million portfolio of unsecured loans and a £60 million book of hire purchase lending agreements.
Fellow buy-to-let lender Bradford & Bingley sold £4.2 billion 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 £15 million and £40 million 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 the securitisation market has effectively closed as banks fearful of losses hoard cash.