Paragon Reports Funding Problems

Paragon, the UK’s third biggest provider of buy-to-let mortgage schemes has today announced it is experiencing cash flow problems, with reserves down by as much as 40% as a result of problems in the global credit market spawned from the sub-prime fallout of the summer months.

The company has today spoken of problems with its short term financing arising from losses linked to debt-based securities which have wavered significantly in recent months as a result of the fall out from the sub-prime mortgage sector over the course of the summer.

In order to attempt to raise further funds, the company has speculated that it may be considering an initial rights issue to the sum of £280 million should it fail to find sufficient funding by the end of the first quarter of next year, which it is feared may be necessary to help raise sufficient capital to continue to fund its lending.

Paragon is one of many financial institutions that raise finance by a process of securitisation, which sees its loan debts packaged and resold as tradable securities to investors. However as a result of the collapse of the sub-prime sector in the US, security bundles like those relied upon by Paragon are no longer attracting the same investor interest.

Meanwhile shares today in Paragon were further down by some 47% over the course of the morning having lost 70% of value over the course of this year amidst ongoing market concerns that it will be unable to financially sustain its business in the ongoing market climate.

Parrallels have been drawn between the Paragon operation and Northern Rock, which operated a similar process of debt securitisation in order to funds its ultimately catastrophic exposure to the sub-prime sector prior to its collapse earlier in the summer.

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