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Paragon shares dive 46 per cent as lender plans emergency rights issue

Shares in Paragon have today dived 46 per cent after it warned this morning that it may have to launch an emergency rights issue as a result of the liquidity crunch.

The buy-to-let specialist lender has seen its price drop by over 80 per cent from a year ago when it was priced at 672p per share in contrast to this morning’s value of 110.25p.

Paragon says that its full year profit fell more than analysts estimated and it may have to raise £280m by selling new shares.

The lender says the terms set by its banks to extend an existing £2.2bn facility of which over £1bn has already been drawn were too expensive and of a short term nature.

It said: “Discussions have taken place with our lending banks for a renewal of our £280m corporate facility, but the terms available are not attractive.”

It added that “the deep turmoil in the credit markets is affecting the normal financing activities of the business. While we expect the credit markets to recover from the current distressed position during 2008, the timing and extent of the recovery will have an impact on our outlook.”

Paragon says it has an agreement with UBS AG, supported by shareholders, to underwrite the sale of new shares in a rights offer.

Paragon’s net income was £62.8m in the year ended September 30, down 8.7 per cent from £68.8m the previous year.

The lender said it has slowed lending to new customers and withdrew certain mortgage products to limit the risk of writing unprofitable business.

It said: “Volumes in the first half of 2008 will be around half the levels in the corresponding period of 2007.”

Paragon also made clear in its statement that it has no involvement in the US mortage market nor any investment, directly or indirectly, in US sub-prime mortgage backed securities, specialised investment vehicles, collateralised debt obligations or similar vehicles.

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