11th Jan 2008 07:01
Paragon Group Of Companies PLC11 January 2008 The Paragon Group of Companies PLC11 January 2008 NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, JAPAN OR AUSTRALIA THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS AND INVESTORS SHOULDNOT SUBSCRIBE FOR OR PURCHASE ANY SHARES REFERRED TO IN THIS ANNOUNCEMENT EXCEPTON THE BASIS OF INFORMATION TO BE CONTAINED IN THE PROSPECTUS TO BE PUBLISHEDTODAY BY THE PARAGON GROUP OF COMPANIES PLC IN CONNECTION WITH THE PROPOSEDRIGHTS ISSUE. COPIES OF THE PROSPECTUS WILL, FOLLOWING PUBLICATION, BE AVAILABLEFROM THE COMPANY'S REGISTERED OFFICE THE PARAGON GROUP OF COMPANIES PLC PROPOSED SHARE CONSOLIDATION PROPOSED 25 FOR 1 RIGHTS ISSUE TO RAISE £287 MILLION The Paragon Group of Companies PLC ("Paragon" or the "Company"), the UKspecialist buy-to-let and consumer finance lender, today announces its proposedShare Consolidation and Rights Issue. Highlights: - Proposed 25 for 1 Rights Issue, post consolidation, fully underwritten by UBSto raise £287 million before expenses - Proposed Share Consolidation on the basis of 1 new £1 share for 10 existing 10pence shares - Proceeds of Rights Issue, together with existing cash resources, will be usedto repay in full the £280 million secured revolving credit facility ("CorporateFacility") by 27 February 2008, its maturity date - Repayment of Corporate Facility removes this refinancing uncertainty - High quality and profitable asset base fully match funded to maturity - Company is continuing to seek additional warehouse and working capitalfinancing to enable higher volumes of origination and lending activity Commenting on today's announcement, Robert Dench, Chairman of Paragon said: "The Rights Issue announced today provides Paragon with financial stability andsecures the value inherent in the Group today for its Shareholders. The Boardbelieves the Rights Issue will provide Paragon with a platform from which it canpursue further funding, so the Company can return to writing significant volumesof profitable business when credit markets reopen. We are very grateful to ourleading Shareholders for the support they have shown the Group and itsmanagement during the recent period of uncertainty and look forward to thefuture with confidence." This summary should be read in conjunction with the full text of thisannouncement. For further information, please contact: The Paragon Group of Companies PLCNigel Terrington, Chief ExecutiveNick Keen, Finance DirectorTel: +44 121 712 2024 UBSAdrian HaxbyNeil PatelTel: +44 20 7567 8000 Fishburn HedgesMorgan BoneTel: +44 20 7839 4321Mobile: +44 7767 622 967 General UBS Investment Bank, which is authorised and regulated in the UK by the FSA, isacting as financial advisor, sponsor, corporate broker and underwriter to theCompany and no one else in connection with the Rights Issue and will not beresponsible to anyone other than the Company for providing the protectionsafforded to clients of UBS Investment Bank or for providing advice in relationto the Rights Issue or for any other matters referred to in this announcement. Apart from the responsibilities and liabilities, if any, which may be imposed onUBS Investment Bank by FSMA or the regulatory regime established thereunder, UBSInvestment Bank accepts no responsibility whatsoever for the contents of thisannouncement or for any other statement made or purported to be made by it, oron its behalf, in connection with the Rights Issue. UBS Investment Bankaccordingly disclaims all and any liability whether arising in tort, contract orotherwise (save as referred to above) which it might otherwise have in respectof such announcement or any such statement. The distribution of this announcement into a jurisdiction other than the UK maybe restricted by law and therefore persons into whose possession thisannouncement comes should inform themselves about and observe any suchrestrictions. Any failure to comply with any such restrictions may constitute aviolation of the securities laws of any such jurisdiction. A combined circular to Shareholders containing both the notice of the EGM andthe prospectus relating to the Rights Issue (the "Prospectus") is expected to bedispatched today. The Prospectus gives further details of the Rights Issue andthe Share Consolidation and contains a notice of an Extraordinary GeneralMeeting of the Company, to be held at 10.00 a.m. on 28 January 2008 at UBSLimited, seventh floor, 1 Finsbury Avenue, London EC2M 2PP. The Prospectus givesfurther details of the New Ordinary Shares, the Nil Paid Rights and the FullyPaid Rights to be offered pursuant to the Rights Issue and the Company'sbusiness. This announcement does not constitute or form part of any offer or invitation tosell or issue, or any solicitation of any offer to acquire, New Ordinary Shares,Provisional Allotment Letters, Nil Paid Rights, Fully Paid Rights and/or to takeup any entitlements to Nil Paid Rights in any jurisdiction in which such anoffer or solicitation is unlawful. The New Ordinary Shares, the Provisional Allotment Letters, the Nil Paid Rightsand the Fully Paid Rights have not been and will not be registered under theSecurities Act or under any relevant securities laws of any state or otherjurisdiction of the US and may not be offered, sold, taken up, exercised,resold, renounced, transferred or delivered, directly or indirectly, within theUS absent of registration under the Securities Act or an applicable exemptionfrom the registration requirements of the Securities Act and in compliance withstate securities laws. The New Ordinary Shares, the Provisional AllotmentLetters, the Nil Paid Rights and the Fully Paid Rights have not been approved ordisapproved by the SEC, any state securities commission in the US or any USregulatory authority, nor have any of the foregoing authorities passed upon orendorsed the merits of the offering of the New Ordinary Shares, the ProvisionalAllotment Letters, the Nil Paid Rights, the Fully Paid Rights or the accuracy oradequacy of the Prospectus. Any representation to the contrary is a criminaloffence in the US. Offers of the New Ordinary Shares, the Provisional AllotmentLetters, the Nil Paid Rights and the Fully Paid Rights are being made outsidethe US in offshore transactions within the meaning of and in accordance withRegulation S under the Securities Act. In addition, none of the New Ordinary Shares, the Provisional Allotment Letters,the Nil Paid Rights or the Fully Paid Rights will qualify for distribution underany of the relevant securities laws of any of the Excluded Territories.Accordingly, the New Ordinary Shares, the Provisional Allotment Letters, the NilPaid Rights and the Fully Paid Rights may not be offered, sold, taken up,exercised, resold, renounced, transferred or delivered, directly or indirectly,within any of the Excluded Territories. This announcement contains forward-looking statements, which are based on theBoard's current expectations and assumptions and involve known and unknown risksand uncertainties that could cause actual results, performance or events todiffer materially from those expressed or implied in such statements. Theseforward-looking statements are subject to the risk factors described in thesection of the Prospectus entitled "Risk Factors". It is believed that theexpectations reflected in these statements are reasonable, but they may beaffected by a number of variables which could cause actual results or trends todiffer materially. Each forward- looking statement speaks only as of the date ofthe particular statement. Except as required by the Listing Rules, theDisclosure and Transparency Rules, the Prospectus Rules, the London StockExchange or otherwise by law, the Company expressly disclaims any obligation orundertaking to release publicly any updates or revisions to any forward-lookingstatements contained herein to reflect any change in the Company's expectationswith regard thereto or any change in events, conditions or circumstances onwhich any such statement is based. No statement in this announcement is intended as a profit forecast. Appendix I contains the expected timetable of principal events in respect of theShare Consolidation and Rights Issue. Appendix II contains the definitions of certain terms used in this announcement. NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY, IN OR INTO THE UNITED STATES, CANADA, JAPAN OR AUSTRALIA Introduction The Company proposes to raise approximately £287 million (before expenses) byway of a Rights Issue underwritten by UBS in full. The Rights Issue will takeplace alongside a Share Consolidation under which the Existing Ordinary Sharesare to be consolidated into £1 Ordinary Shares on a one for 10 basis. Pursuantto the Rights Issue the Directors propose to offer New Ordinary Shares at £1 pershare to all Qualifying Shareholders on the basis of five New Ordinary Shares of£1 each for every two Existing Ordinary Shares of 10 pence each that eachQualifying Shareholder holds at the close of business on the Rights Issue RecordDate. In effect, taking into account the Share Consolidation, the Rights Issue offeris being made on a 25 for one basis and at the Rights Issue Price of £1 per £1New Ordinary Share. In effect, this represents a 90.2 per cent. discount to the Closing Price of anExisting Ordinary Share of 102 pence on 10 January 2008. If a QualifyingShareholder does not take up any of his entitlement to New Ordinary Shares, hisproportionate shareholding will be diluted by 96.2 per cent. However, if aQualifying Shareholder takes up his rights in full, he will, following the ShareConsolidation and the Rights Issue being completed and subject to the treatmentof fractions, have the same proportional voting rights and entitlements todistributions as he had on the Rights Issue Record Date. The Share Consolidation and Rights Issue are conditional upon the Shareholdersauthorising the consolidation and increase in the Company's share capital andauthorising the Directors to allot and issue the New Ordinary Shares. Suchapproval will be sought at the Extraordinary General Meeting to be held at 10.00a.m. on 28 January 2008 at the offices of UBS Limited, seventh floor, 1 FinsburyAvenue, London EC2M 2PP. A prospectus relating to the Rights Issue and convening an Extraordinary GeneralMeeting to be held at 10.00 a.m. on 28 January 2008 to approve the Rights Issueand the Share Consolidation will be published today. A request has been made to the UK Listing Authority and to the London StockExchange to reflect, on the Official List and the London Stock Exchange's mainmarket for listed securities respectively, the redenomination of the ExistingOrdinary Shares as £1 Ordinary Shares. In addition, application has been made tothe UK Listing Authority for the New Ordinary Shares (nil and fully paid) to beadmitted to the Official List and to the London Stock Exchange for the NewOrdinary Shares (nil and fully paid) to be admitted to trading on the LondonStock Exchange's main market for listed securities. It is expected thatAdmission will become effective and that dealing in the New Ordinary Shares willcommence on the London Stock Exchange, nil paid, at 8:00 a.m. on 29 January2008. Background Paragon relies on wholesale sources of funding for its lending businessesbecause it is not a deposit taking institution. The Group's business has beendependent upon three principal sources of funding: the wholesale ABS markets,interim warehouse funding and working capital provided by banks. The Group has been one of the most active UK issuers of asset backed securitiesin the ABS markets. This has been the predominant source of the Group's fundingover the past 16 years and the Group currently has approximately £10 billion ofsuch securities outstanding issued by 15 Group companies, each of which is aspecial purpose vehicle company ("SPV"). The Group last issued securities intothe ABS markets in an amount of £1.0 billion in July 2007. Since that time,credit market conditions globally have deteriorated considerably in the wake ofthe US sub-prime crisis and the Group has been unable to issue furthersecurities into the ABS markets on commercially acceptable terms. Prior toaccessing the ABS markets, the Group's policy is to fund new assets (includingboth mortgage loans and consumer finance) through subsidiaries which are SPVs.The SPVs raise the funding necessary for new advances by drawing on a facility(the "Warehouse Facility") which currently has a borrowing limit of £2.325billion and is provided by a syndicate of banks (the "Warehouse FacilityBanks"). As at 30 November 2007, there was £1.556 billion outstanding under thisWarehouse Facility. Security has been granted to the Warehouse Facility Banksover the assets funded using the Warehouse Facility and over certain other Grouprights and assets. It is expected that, from 29 February 2008, the Warehouse Facility will cease tobe available to fund new advances, although in accordance with its terms, assetsalready funded at that date will remain funded to maturity. The Board expectsthe total amount outstanding under the Warehouse Facility to be approximately£1.9 billion at 29 February 2008. It has not been possible to agree with theWarehouse Facility Banks commercially acceptable terms for any extension of theavailability period for new advances under the Warehouse Facility. However, itis expected that the Warehouse Facility will continue to fund the warehousedassets until such time as the ABS markets become accessible to the Group oncommercially acceptable terms for the purpose of refinancing such assets. In addition, the Group currently has the benefit of a secured revolving creditfacility of up to £280 million (the "Corporate Facility") provided by asyndicate of banks (the "Corporate Facility Banks") to each of Paragon andParagon Finance PLC ("PFPLC"). The Corporate Facility may be utilised forgeneral corporate and working capital purposes. Security (the "CorporateFacility Security") has been granted to the Corporate Facility Banks overeffectively all of the assets of the Group which are not otherwise secured inrespect of the Warehouse Facility or the asset backed securities issued by theGroup. The Corporate Facility matures and falls due for repayment on 27 February 2008. Reasons for the Rights Issue and Use of Proceeds In view of the potential funding uncertainty faced by the Group, the Companyentered into the Standby Letter with UBS on 19 November 2007 in order to provideit with a fallback source of funding to repay the Corporate Facility on itsmaturity should it not prove possible to reach agreement prior to such maturitywith the Corporate Facility Banks for its renewal or extension. Since November2007 the Corporate Facility Banks have informed the Company that they will notrenew or extend the Corporate Facility and require full repayment on or before27 February 2008 in accordance with its terms. Consequently the Company hasactively explored a range of possible alternatives. However, in view of thecurrent conditions in the banking markets and the proximity of the repaymentdate of the Corporate Facility, it has not been possible to date to securefunding from alternative sources to replace the Corporate Facility. In order, therefore, to be in a position to repay the Corporate Facility on itsdue date and as a result remove the risk of default under that facility, theCompany is proposing the Rights Issue, which has been underwritten in full byUBS, to raise an amount before expenses of £287 million. The proceeds of theRights Issue together with the existing cash resources of the Company willensure the repayment of the Corporate Facility thereby protecting theshareholder value in the Group. The Board believes that this shareholder value comprises four principalelements: (i) the embedded value of the future income stream to be derived from the highquality portfolio of assets outstanding, which as at 30 November 2007 total some£11.3 billion. The effect of the Warehouse Facility and SPVs and the securitiesthey have issued in the ABS markets is that all of these assets are fully fundedto maturity; (ii) the net assets of the Group, which reflect the capital deployed in supportof the lending business, largely in the form of credit enhancement and otherfinancial collateral held within the SPVs. Over time, with the amortisation ofthe asset portfolio, it is anticipated that this capital would be recycled tosupport further lending or, if not otherwise required by the Group, the Boardwould take steps to return the capital to Shareholders; (iii) the goodwill of the Group represented by the contingent value of newbusiness that the Group may be expected to originate in the future, based on itsestablished reputation, customers, distribution network and its strong marketshare; and (iv) the strategic value of the Group to third parties wishing to enter orincrease their presence in the BTL market in the UK. By subscribing to the Rights Issue and thereby enabling repayment of theCorporate Facility, Shareholders will be increasing the equity capital base andnet assets of the Group and protecting the value of their existing investment inthe Group. They will also be protecting the Group's ability to create furthervalue in the future through additional new business. This is subject to theavailability of further warehouse facilities and associated working capitalfacilities and the ability of the Group to access the ABS markets in due courseon commercially acceptable terms, both of which are dependent upon the easing ofcredit markets generally once the current 'credit crunch' has passed. The Boardcontinues actively to explore potential financing opportunities to enable theGroup to further develop its business. Current Trading, Prospects and Strategy For the past 12 years the Group has pursued a strategy of careful growth in coremarkets which offer high quality assets, funded portfolio by portfolio tomaturity through the ABS markets. This has produced consistent profit growthover the period and particularly in recent years in view of the strength of theBTL lending market in the UK. The Group achieved record profits before tax in the year ended 30 September2007, the majority of which were generated by the Group's BTL businesses, asector which the Directors believe has strong credit defensive qualities andlong-term growth prospects, reflecting an increased structural demand for rentedproperty in the UK. Since 30 September 2007, the Group's business has continuedto operate profitably in line with management's expectations. The Board believes that, by virtue of its portfolio of high quality loan assetsand its operational infrastructure, the Group is well placed to manage itsportfolio of assets in the current market conditions. The Group has rigorouslyapplied conservative credit approval criteria in its lending activities,including, for its BTL mortgage businesses, a normal maximum 85 per cent. loanto value ("LTV") limit and a normal minimum rent to interest cover of 125 percent. The average indexed LTV ratio across the Group's BTL portfolio was 66.6per cent. as at 30 September 2007, reflecting a significant degree of equityprotection in its customers' portfolios. The credit performance of the Group'sBTL portfolio has been exemplary, with a three months or over arrears rate of0.18 per cent. of accounts across the portfolio as at 30 September 2007. Apartfrom the conservative lending criteria described above, this is due to theparticular characteristics of the BTL lending market, including the ability oflenders to divert rental payments from tenants in the event of borrower default.As at 30 September 2007, only 441 out of the Group's total of 75,869 BTLmortgage accounts had indexed LTVs in excess of 90 per cent. (using theNationwide Quarterly Index at September 2007). This represents an aggregateexcess of £2.1 million above that level in the total BTL book of £9.95 billionand serves to illustrate the credit defensive policy of Paragon's BTL portfoliowithin PML and MTL. All the Group's assets in its existing SPVs (which include those in theWarehouse Facility) are match funded to maturity. Assuming the Rights Issue iscompleted successfully, the Group has funding available for all other assetsuntil at least 2017 at known coupons over LIBOR. This being so, the Boardexpects that the Group's existing portfolio of assets will continue to generatepositive margins and cash flow for the remainder of the asset lives. Thisrevenue will decline over time, however, as assets within the portfolio areredeemed. The Board believes that the BTL lending market in the UK will continue to offerattractive opportunities and returns for lenders. This is supported by strongdemographic factors and the continuing supply restrictions expected to affectthe UK residential property sector generally. The Group has a well developed andexperienced customer base which is well positioned to prosper in theseconditions. The Board therefore intends to continue to pursue actively allprudent funding options open to it in the future to maintain and develop theGroup's business for the benefit of Shareholders. It will also continue toexplore possible strategic options for the enhancement of shareholder value. If the Rights Issue proceeds, the Board will continue to seek appropriateadditional working capital and warehouse financing to enable the Group tooriginate further new business in the future and to act as an originator ofassets for third parties through the Group's network of brokers and otherintermediaries, thus generating commission income rather than net interestmargin as at present. This will be in addition to any origination permitted within the existingfunding arrangements, comprising a small volume of mortgage lending until 28February 2008 as Paragon completes on outstanding mortgage offers. Beyond thisdate, new mortgage business is likely to be limited to further advances onexisting mortgages financed by available redemption funds in the SPVs. Some newconsumer finance lending will be possible using substitution capacity inexisting financing vehicles. Furthermore, originations under any new warehousefacilities which may be arranged are likely to be at significantly lower volumesthan recent levels. Ultimately, the Group's ability to grow in the future willbe dictated by its ability to regain access to the ABS markets on commerciallyacceptable terms. In these ways the Board will seek to maintain the Group's brands in the marketpending a return to more normal credit market conditions, when the Group expectsto be able to return to higher volumes of its own origination and lendingactivity. In the meantime the Board will continue to manage the business within itsavailable resources over time with a view to realising the embedded valueinherent in the future net cash flow attributable to the assets and to release,for the Group's benefit, the capital supporting them in the form of creditenhancement and other collateralisation. In these circumstances, the £1.9billion of mortgage assets expected to be contained in the Warehouse SPV on 29February 2008 would be expected to generate a positive net interest margin overthe remaining lives of those assets even after a step up in the cost of fundingfor the mortgage assets under that facility from the current rate of 0.225 percent. over LIBOR to the higher rate of 0.675 per cent. over LIBOR. The remainingassets, totalling approximately £10 billion as at 30 November 2007, financedprincipally in the asset backed SPVs, are currently expected to continue togenerate net interest margin consistent with the historic performance of thoseassets. The historic rate of redemption for the Group's BTL mortgage assets hasbeen approximately 20 per cent. per annum on a fixed pool basis. At the sametime the Group's business would be expected to continue to generate other income(e.g. fees and commissions) in line with historic performance, but decliningover time as the absolute value of the asset base reduces. As a consequence ofany such decline in the level of the Group's activity, the Board would takeappropriate measures to reduce the Group's cost base. If the Board concludes in due course that, as a result of continuing uncertaintyin credit markets or otherwise, it is not in Shareholders' interests to continueto seek to develop the business further, it will take such steps as it considersappropriate to return to Shareholders the equity capital not otherwise requiredby the Group. This will be done through the orderly realisation of creditenhancement capital and other assets employed within the Group. As at 30November 2007, the total of the Group's investments in the SPVs was £550.8million, comprising £100.5 million in the Warehouse SPV and £450.3 million inthe other SPVs. Moreover, in the event that it is possible in due course toraise additional working capital finance on commercially acceptable terms, andto the extent that some or all of the capital raised through the Rights Issue isno longer required by the Group, the Board will seek to return any such surplusto Shareholders. Market Backdrop The BTL lending market in the UK has seen a period of unprecedented growth inrecent years and was estimated by the Council of Mortgage Lenders to account for10.0 per cent. of all mortgages outstanding by value as at 30 September 2007(CML Research 19 November 2007). This has been driven by the attractive returnslandlords have been able to obtain through a combination of rental yields andcapital appreciation and by rising rental demand due, inter alia, to governmenthousing policy, affordability constraints and the demographic trends in the UKwith a growing student and immigrant population. The housing market in the UK isentering a period of uncertainty following a period of strong house priceappreciation, rising interest rates and the more recent restrictions on marketliquidity caused by the current adverse credit market conditions. In the Board'sview, however, the long term prospects for the private rented sector in the UKremain sound given demographic demand factors and supply restrictions in the UKproperty market. Details of the Share Consolidation The Directors are proposing to consolidate the Company's existing share capitalon the basis described below (the "Share Consolidation"). The purpose of theShare Consolidation, amongst other things, is that, following the Rights Issue,the number of shares in issue and the likely share price is appropriate for acompany of Paragon's size in the UK market. The effect of the Share Consolidation will be that Shareholders on the Company'sregister of members at the close of business on the 28 January 2008, will, onthe implementation of the Share Consolidation, hold: one £1 Ordinary Share for 10 Existing Ordinary Shares of 10 pence each and in that proportion for any other number of Existing Ordinary Shares thenheld. The proportion of the issued ordinary share capital of the Company held byeach Shareholder following the Share Consolidation will, save for fractionalentitlements, remain unchanged. Apart from having a different nominal value,each £1 Ordinary Share will carry the same rights as set out in the Company'sArticles of Association that currently attach to the Existing Ordinary Shares. To effect the Share Consolidation it may be necessary to issue an additionalnumber of Ordinary Shares of the Company so that the Company's issued sharecapital following the consolidation is rounded up to the nearest whole pound. Any fractional entitlements arising on the Share Consolidation will be sold inthe market on behalf of the Shareholder so entitled save that where the netproceeds are less than five pounds (£5) per entitled Shareholder then the netproceeds of such sale will be retained for the benefit of the Company. A request will be made to the UKLA and to the London Stock Exchange to reflect,on the Official List and the London Stock Exchange's main market for listedsecurities respectively, the consolidation of the Existing Ordinary Shares into£1 Ordinary Shares. New share certificates in respect of the £1 Ordinary Shares are expected to beposted at the risk of Shareholders by 5 February 2008 to those Shareholders who,at the Share Consolidation Record Date, hold their shares in certificated form.These will replace existing certificates which should then be destroyed. Pendingthe receipt of new certificates, transfers of £1 Ordinary Shares held incertificated form will be certified against the register of members of theCompany. All Existing Ordinary Shares standing to the credit of CREST accounts will beconsolidated into £1 Ordinary Shares at 8.00 a.m. on 29 January 2008. Principal terms of the Rights Issue Subject to the Resolutions being passed, the Directors propose to offer NewOrdinary Shares at £1 per share by way of rights to all Qualifying Shareholders,payable in full on acceptance, on the following basis: 5 New Ordinary Shares of £1 each for every 2 Existing Ordinary Shares of 10 pence each that each Qualifying Shareholder holds and has registered in that Shareholder'sname at the close of business on the Rights Issue Record Date, and so inproportion to any other number of Existing Ordinary Shares each QualifyingShareholder then holds. In effect, the Rights Issue offer is being made on the following basis: 25 New Ordinary Shares of £1 each for every one Ordinary Share of £1 each that a Qualifying Shareholder holds taking into account the Share Consolidationand at the Rights Issue Price of £1 per £1 New Ordinary Share. In effect, this represents a 90.2 per cent. discount to the Closing Price of anExisting Ordinary Share of 102 pence on 10 January 2008. If a QualifyingShareholder does not take up any of his entitlement to New Ordinary Shares, hisproportionate shareholding will be diluted by 96.2 per cent. However, if aQualifying Shareholder takes up his rights in full, he will, following the ShareConsolidation and the Rights Issue being completed and subject to the treatmentof fractions, have the same proportional voting rights and entitlements todistributions as he had on the Rights Issue Record Date. New Ordinary Shares representing fractional entitlements will not be allotted toQualifying Shareholders and, where necessary, entitlements to New OrdinaryShares will be rounded down to the nearest whole number. The New Ordinary Shareswill, when issued and fully paid, rank pari passu in all respects with the £1Ordinary Shares, including the right to all future dividends or otherdistributions made, paid or declared after the date of their issue. The Nil Paid Rights or Fully Paid Rights represented by a Provisional AllotmentLetter may be converted into uncertificated form, that is, deposited into CREST(whether such conversion arises as a result of a renunciation of those rights orotherwise). Similarly, Nil Paid Rights or Fully Paid Rights held in CREST may beconverted into certificated form, that is, withdrawn from CREST. The Company has arranged for the Rights Issue to be underwritten by UBS in orderto provide certainty as to the amount of capital to be raised. The Rights Issue is conditional, amongst other things, on: (i) the passing at the Extraordinary General Meeting of the Resolutions; (ii) Admission becoming effective by not later than 8.00 a.m. on 29 January 2008(as the Dealing Day immediately after the date of the Extraordinary GeneralMeeting) or such later time on 29 January 2008, as the Company and UBS mayagree; and (iii) the Underwriting Agreement otherwise becoming unconditional in allrespects and not having been terminated in accordance with its terms prior toAdmission. Prior to Admission, UBS may terminate the Underwriting Agreement in certaincircumstances which the Board considers to be remote. After Admission, however,the underwriting arrangements will not be subject to any right of termination(including in respect of any statutory withdrawal rights). Application has been made to the UKLA for the New Ordinary Shares (nil and fullypaid) to be admitted to the Official List and to the London Stock Exchange forthe New Ordinary Shares (nil and fully paid) to be admitted to trading on theLondon Stock Exchange's main market for listed securities. It is expected thatAdmission will become effective and that dealings in the New Ordinary Shareswill commence on the London Stock Exchange, nil paid, at 8.00 a.m. on 29 January2008. It is expected that dealings in the New Ordinary Shares, fully paid, willcommence on the London Stock Exchange at 8.00 a.m. on 21 February 2008. The Rights Issue is expected to result in the issue of 287,010,605 New OrdinaryShares (representing approximately 96.2 per cent. of the expected Enlarged ShareCapital). The New Ordinary Shares will, when issued and fully paid, rank paripassu in all respects with, and will carry the same voting and dividend rightsas, the Existing Ordinary Shares and, following the Share Consolidation, the £1Ordinary Shares. The New Ordinary Shares are also capable of being held incertificated form. Dividend Policy In view of the current circumstances in which the Company finds itself, theBoard has decided not to pay a final dividend in relation to the financial yearended 30 September 2007. The Board does not propose to pay any further dividendsuntil the prospects for the Company are clarified. In the circumstances wherethe Rights Issue proceeds but the Group severely restricts the origination ofnew business, the Board would nevertheless expect the Group's portfolio of loanassets to generate significant cash flow over its remaining life. In thesecircumstances the Board would seek to distribute such cash to Shareholders tothe extent it is available for distribution and is not otherwise needed in thebusiness. If, in due course, the Group is able to materially increase its levelsof loan origination by securing additional warehouse or other working capitalfacilities on commercially acceptable terms, the Board will reassess thedividend policy in the context of the profits it then expects to generate. Overseas Shareholders The offer by way of rights to Qualifying Shareholders who have no registeredaddress within the UK (other than those with registered addresses in the US, anyof the Excluded Territories or any other jurisdictions outside the UK in whichit would be illegal to make an offer) will (provided the Resolutions are passedand the Rights Issue otherwise becomes unconditional) be made by the Company inthe same manner in which the offer is made to Qualifying Shareholders with aregistered address within the UK. In addition, in accordance with section 90(5)of the Act, the offer by way of rights to Qualifying Shareholders who have noregistered address within the UK and who have not given the Company an addresswithin the UK for the service of notices will (provided the Resolutions arepassed and the Rights Issue otherwise becomes unconditional) be made by theCompany publishing a notice in the London Gazette on the Business Day followingthe date on which the Provisional Allotment Letters are dispatched, statingwhere copies of the Prospectus and Provisional Allotment Letter may be inspectedor, in certain circumstances, obtained on personal application, by or on behalfof such Qualifying Shareholders. Qualifying Shareholders who have registered addresses in or who are resident in,or who are citizens of, countries other than the UK (including withoutlimitation the US and any of the Excluded Territories) should consult theirprofessional advisers as to whether they require any governmental or otherconsent or need to observe any other formalities to enable them to take up theirentitlements to the Rights Issue. Extraordinary General Meeting An Extraordinary General Meeting of the Company is to be held at the offices ofUBS Limited, seventh floor, 1 Finsbury Avenue, London, EC2M 2PP on 28 January2008 at 10.00 a.m. for the purposes of considering and, if thought fit, passingthe Resolutions. The Resolutions to be proposed are seeking approval: 1. to effect the Share Consolidation, by consolidating, with effect from theclose of business on 28 January 2008, all the authorised Existing OrdinaryShares (issued or unissued) in the capital of the Company into £1 OrdinaryShares on the basis of one £1 Ordinary Share for every ten Existing OrdinaryShares, each £1 Ordinary Share having the same rights as those currentlyattaching to an Existing Ordinary Share; 2. to increase the authorised share capital of the Company subject to andconditional on the Share Consolidation from £17,500,000 to £310,000,000 by thecreation of 292,500,000 new £1 Ordinary Shares. This number of new £1 OrdinaryShares represents an increase of approximately 1,671 per cent. of the authorisedshare capital of the Company as at 10 January 2008. If this resolution ispassed, and the Rights Issue proceeds, following completion of the Rights Issuethere will be 10,840,071 authorised but unissued £1 Ordinary Shares assumingthat, (i) 287,010,605 New Ordinary Shares are issued pursuant to the RightsIssue, and, (ii) no Existing Ordinary Shares of £1 Ordinary Shares are issued inthe period from 10 January 2008 to the completion of the Rights Issue; and 3. subject to and conditional on the Share Consolidation, to authorise theDirectors to exercise all of the powers of the Company to allot up to293,663,469 £1 Ordinary Shares (which will represent 98.4 per cent. of theexpected Enlarged Share Capital) being up to a maximum nominal amount of£293,663,469. Each Resolution will be proposed as an ordinary resolution requiring a simplemajority of votes in favour. Effect of the Resolutions not being passed If the Resolutions are not passed at the Extraordinary General Meeting, theRights Issue will not proceed. In such circumstances, the Directors will takeimmediate action to seek to reopen discussions with the Corporate Facility Bankswith a view to securing an extension or renewal of the Corporate Facility oncommercially acceptable terms whilst simultaneously seeking to raise alternativesources of funding to enable Paragon and PFPLC to be in a position to repay theCorporate Facility on its repayment date in the event that any discussions withthe Corporate Facility Banks are unsuccessful. Given that recent negotiations with the Corporate Facility Banks have beenunsuccessful, the Directors can offer no assurance as to whether the CorporateFacility Banks would agree to reopen any discussions, whether they would agreeto any extension or renewal of the Corporate Facility or as to the terms onwhich any such extension or renewal may be granted. Neither can the Directorsoffer any assurance as to whether any alternative financing can be put in placeto enable Paragon and PFPLC to be in a position to repay the Corporate Facilityon its due date. If the Directors were to be unsuccessful in securing any such extension orrenewal from the Corporate Facility Banks or in securing sufficient alternativesources of funding, Paragon and PFPLC will be unable to repay the CorporateFacility on its current repayment date. Following a failure to repay the Corporate Facility on the repayment date thesecurity trustee in respect of the Corporate Facility Security and/or theCorporate Facility Banks would have a number of options available to it or them,to be exercised by it or them in their sole discretion as to timing and/ormanner including: • to take proceedings against the Company and/or PFPLC for the recovery of allsums due under the Corporate Facility; and/or • to enforce the Corporate Facility Security. Any of these options would become immediately available following 27 February2008, the due date for the Corporate Facility. However, the Directors believethat the most likely course of events would be for the security trustee toenforce the Corporate Facility Security and to seek to appoint an administrativereceiver. The Directors can offer no assurance as to how soon after 27 February2008 any such steps would be taken by the security trustee. Any realisation ofthe value of the assets constituting the Corporate Facility Security (which, asstated above, comprises all of the assets of the Group which are not otherwisesecured in respect of the Warehouse Facility or the asset backed securitiesissued by the Group) would be applied in the first instance to repay theCorporate Facility and any other debts of the Company and funds would onlybecome available to the Group in circumstances where a surplus was realisedfollowing repayment in full of the Corporate Facility and such other debt. The Board considers that any of the actions described above would be extremelyharmful to Shareholders' interests and there can be no certainty that in suchcircumstances there would be any value attributable to the Company's OrdinaryShares nor of when any such value might be realised. Recommendation The Board, which has received financial advice from UBS, believes that theResolutions are in the best interests of the Company and its Shareholders as awhole. In providing advice to the Board, UBS has taken into account thecommercial assessment of the Directors. Accordingly, the Board unanimouslyrecommends that Shareholders vote in favour of each of the Resolutions to beproposed at the Extraordinary General Meeting, as those Directors who areShareholders intend to do in respect of their own beneficial holdings ofExisting Ordinary Shares of, in aggregate, 711,310 Ordinary Shares, representingapproximately 0.62 per cent. of the issued share capital of the Company as at 10January 2008. Those Directors who are Shareholders intend to subscribe under theRights Issue for such number of New Ordinary Shares as represent in aggregate atleast 73 per cent. of the rights attributable to their aggregate shareholdingsin the Company. For further information, please contact: The Paragon Group of Companies PLCNigel Terrington, Chief ExecutiveNick Keen, Finance DirectorTel: +44 121 712 2024 UBSAdrian HaxbyNeil PatelTel: +44 20 7567 8000 Fishburn HedgesMorgan BoneTel: +44 20 7839 4321Mobile: +44 7767 622967 Appendix I Expected Timetable of Principal Events in Respect of the Share Consolidation and Rights Issue 2008 Announcement of the Rights Issue and 11 Januarypublication of the Prospectus Rights Issue Record Date Close of business 25 January on Latest time and date for receipt of Forms 10.00 a.m. on 26 Januaryof Proxy Extraordinary General Meeting 10.00 a.m. 28 January Share Consolidation Record Date Close of business 28 January on Dispatch of Provisional Allotment Letters 28 January(to Qualifying non-CREST Shareholdersonly) Admission 8.00 a.m. on 29 January Dealings in £1 Ordinary Shares, Nil Paid 8.00 a.m. on 29 JanuaryRights and Fully Paid Rights commence onthe London Stock Exchange and £1 OrdinaryShares marked "ex" Nil Paid Rights credited to stock as soon as 29 Januaryaccounts in CREST (Qualifying CREST practicable afterShareholders only) 8.00 a.m. on Nil Paid Rights and Fully Paid Rights as soon as 29 Januaryenabled in CREST practicable after 8.00 a.m. onDate of dispatch of definitive share by 5 Februarycertificates for £1 Ordinary Shared heldin certificated form Recommended latest time for requesting 4.30 p.m. on 14 Februarywithdrawal of Nil Paid Rights or FullyPaid Rights from CREST (i.e. if your NilPaid Rights or Fully Paid Rights are inCREST and you wish to convert them intocertificated form) Recommended latest time and date for 3.00 p.m. on 15 Februarydepositing renounced ProvisionalAllotment Letters, nil paid or fullypaid, into CREST or for dematerialisingNil Paid Rights or Fully Paid Rights intoa CREST stock account Latest time and date for splitting 3.00 p.m. on 18 FebruaryProvisional Allotment Letters, nil paidor fully paid Latest time and date for acceptance and 11.00 a.m. on 20 Februarypayment in full and registration ofrenounced Provisional Allotment Letters Dealings in New Ordinary Shares, fully 8.00 a.m. on 21 Februarypaid, commence on the London StockExchange and New Ordinary Shares creditedto CREST stock accounts (uncertificatedholders only) Date of dispatch of definitive share by 26 Februarycertificates for New Ordinary Shares incertificated form (i) Each of the times and dated set out in the above timetable is subject tochange by the Company, in which event details of the new times and dated will benotified to the UKLA and, where appropriate, to Shareholders. (ii) References to times in this announcement are to London, UK time. (iii) If you have any queries on the procedure for acceptance and payment or onthe procedure for splitting Provisional Allotment Letters you should contact theReceiving Agent, Computershare Investor Services PLC, Corporate ActionsProjects, Bristol BS99 6AH on 0870 707 1244 if calling from the UK or on +44 870707 1244 if calling from outside the UK between 9.00 a.m. and 5.00 p.m. Mondayto Friday. For legal reasons the Shareholder Helpline will not be able toprovide advice on the merits of the Rights Issue or to provide financial, tax orinvestment advice. Appendix II Definitions"£1 Ordinary Shares" the Ordinary Shares following the Share Consolidation having taken effect"ABS" asset backed securities"Act" the Companies Act 1985, as amended"Admission" the admission of the New Ordinary Shares (nil paid) to the Official List and to trading on the market for listed securities of the London Stock Exchange becoming effective, and references to "Admission becoming effective" means its becoming effective in accordance with LR 3.2.7G of the Listing Rules and paragraph 2.1 of the Admission and Disclosure Standards published by the London Stock Exchange"Articles" the articles of association of the Company in force as at the date of this announcement"Australia" the Commonwealth of Australia, its territories and possessions"the Board" the board of directors of the Company as at the date of this announcement"BTL" buy-to-let"Business Day" any date (other than Saturday or Sunday or a bank holiday) on which banks are generally open in London for normal banking business"Canada" Canada, its provinces and territories and all the areas under its jurisdiction and political subsidiaries thereof"certificated" or not in uncertificated form"certificated form""Closing Price" the closing, middle market quotation of an Existing Ordinary Share, as published in the Daily Official List"Corporate Facility" the secured revolving credit facility of the Company of up to £280 million"Corporate Facility the syndicate of banks providing the CorporateBanks" Facility"Corporate Facility the security granted to the Corporate FacilitySecurity" Banks in respect of the payment obligations of the Group under the Corporate Facility"CREST" the relevant systems (as defined in the CREST Regulations) for paperless settlement of share transfers and the holding of shares in uncertificated form in respect of which Euroclear is the operator (as defined in the CREST Regulations)"CREST Regulations" the Uncertificated Securities Regulations 2001 (S.I.2001, No. 3755), as amended"Daily Official List" the daily official list of the London Stock Exchange"Dealing Day" any day on which the London Stock Exchange is open for business in the trading of securities admitted to the Official List"the Directors" the directors of the Company at the date of this announcement and "Director" means any one of them"Disclosure and the disclosure and transparency rules made underTransparency Rules" Part VI of FSMA (as set out in the FSA Handbook) as amended"Enlarged Share Capital" the issued share capital of the Company following completion of the Share Consolidation and the Rights Issue"Excluded Territories" Canada, Japan and Australia and any other jurisdiction where the extension or availability of the Rights Issue (and any other transaction contemplated thereby) would breach any applicable law"Euroclear" Euroclear UK & Ireland Limited, the operator of CREST"Existing Ordinary the Ordinary Shares of 10 pence each in theShares" capital of the Company prior to the Share Consolidation becoming effective"Extraordinary General the extraordinary general meeting of the CompanyMeeting" or "EGM" convened for 10.00 a.m. on 28 January 2008"Forms of Proxy" the forms of proxy accompanying the Prospectus for use in connection with the Extraordinary General Meeting"FSA" the Financial Services Authority"FSMA" the Financial Services and Markets Act 2000, as amended"Fully Paid Rights" rights to acquire New Ordinary Shares, fully paid"Group" the Company and its subsidiaries from time to time"Japan" Japan, its cities, prefectures, territories and possessions"LIBOR" London InterBank Offered Rate"Listing Rules" the Listing Rules made by the UKLA for the purposes of Part VI of FSMA"London Stock Exchange" London Stock Exchange plc or its successor"LTV" loan to value"New Ordinary Shares" the new £1 Ordinary Shares to be issued by the Company in accordance with the Rights Issue, and "New Ordinary Share" means one of them"Nil Paid Rights" New Ordinary Shares in nil paid form provisionally allotted to Qualifying Shareholders pursuant to the Rights Issue"Official List" the list maintained by the UKLA pursuant to Part VI of FSMA"Ordinary Shares" ordinary shares of 10 pence each in the capital of the Company and, following the Share Consolidation, ordinary shares of £1 each in the capital of the Company"Overseas Shareholders" holders of Ordinary Shares with registered addresses outside the UK or who are citizens of, incorporated in, registered in or otherwise resident in, countries outside the UK"Paragon" or "Company" The Paragon Group of Companies PLC"PFPLC" Paragon Finance PLC"Prospectus" a combined circular to Shareholders containing both the notice of the Extraordinary General Meeting and the prospectus relating to the Rights Issue and Share Consolidation"Prospectus Rules" the rules made by the UKLA for the purposes of Part VI of FSMA"Provisional Allotment The renounceable provisional allotment letter toLetter" be issued to Qualifying non-CREST Shareholders by the Company in respect of the Nil Paid Rights pursuant to the Rights Issue"Qualifying CREST Qualifying Shareholders whose Ordinary Shares onShareholders" the register of members of the Company at the close of business on the Rights Issue Record Date are in uncertificated form"Qualifying non-CREST Qualifying Shareholders who Ordinary Shares onShareholders" the register of members of the Company at the close of business on the Rights Issue Record Date are in certificated form"Qualifying holders of Ordinary Shares on the register ofShareholders" members of the Company at the close of business on the Rights Issue Record Date"Receiving Agent" Computershare Investor Services PLC, Corporate Actions Projects, Bristol, BS99 6AH"Resolutions" the resolutions set out in the notice of the Extraordinary General Meeting"Rights Issue" the proposed issue by way of rights of New Ordinary Shares to Qualifying Shareholders"Rights Issue Price" £1.00 per New Ordinary Share"Rights Issue Record the close of business on 25 January 2008Date""SEC" The US Securities and Exchange Commission"Securities Act" the United States Securities Act of 1933, as amended"Share Consolidation" the proposed consolidation of the Company's existing share capital"Share Consolidation 28 January 2008Record Date""Shareholder" a holder of Ordinary Shares"SPV" special purpose vehicle"Standby Letter" the standby agreement for equity financing entered into between the Company and UBS on 19 November 2007"UBS" or "UBS Investment UBS Limited of 1 Finsbury Avenue, London, EC2MBank" 2PP"UKLA" or UK Listing the FSA acting in its capacity as the competentAuthority" authority for the purposes of Part VI of FSMA and in exercise of its function in respect of the admission to the Official List otherwise than in accordance with Part VI of FSMA"uncertificated" or a share or other security recorded on the"uncertificated form" relevant register of the share or security concerned as being held in uncertificated form in CREST and title to which by virtue of the CREST Regulations, may be transferred by means of CREST"Underwriting Agreement" the agreement dated 11 January 2008 between the Company and UBS"United Kingdom" or "UK" the United Kingdom of Great Britain and Northern Ireland, its territories and dependencies"United States" or "US" the United States of America, its territories and possessions, any state of the United States of America and the District of Columbia"Warehouse Facility" the facility of the Company with a borrowing limit of £2.325 billion"Warehouse Facility the syndicate of banks providing the WarehouseBanks" Facility"Warehouse Facility the security granted against the WarehouseSecurity" Facility CE080090053 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Paragon Group