Paragon plans to sell book of car loans

The buy-to-let specialist revealed last week that it may need to tap its shareholders for £280m by the end of February to stay in business.
But it is now lining up sales of a number of loan books in an attempt to raise cash. Along with the book of car loans, the potential disposals are thought to include a £60m portfolio of unsecured loans and a £60m book of hire purchase lending agreements. It also has a £450m book of secured loans.

Although the disposals may not provide enough cash to resolve all of Paragon's problems, it is understood that they could help the company renegotiate terms with its lending banks. Paragon is still in talks with its lenders, JPMorgan and Royal Bank of Scotland, about a possible renewal of a £280m working capital facility and a £2.3bn warehouse facility, which is the mortgage lender's prime source of funding.

Although Paragon's advisers at UBS have agreed to underwrite a discounted rights issue, the company still thinks it will not need to use the facility, and that it can strike a suitable agreement with its bankers within the next few weeks.

It is understood that the lending banks have been attempting to negotiate the renewal of the working capital facility and the warehouse funding line as one deal. Paragon is now attempting to renegotiate the two deals separately, and may attempt to find other banks interested in supporting a deal. If the company cannot agree new terms with the banks it will have to stop lending, and its existing mortgage book will go into run-off.

The move comes as all Britain's mortgage banks attempt to shore up their funding position to allay market fears that they could become the next Northern Rock

Bradford & Bingley sold a £4.2bn book of commercial loans to General Electric and Dexia last week, which offered reassurance to the market.