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Bradford & Bingley PLC revises funding plan after private equity firm TPG pulls out
(Associated Press WorldStream Via Acquire Media NewsEdge) LONDON_Mortgage lender Bradford & Bingley PLC said Friday it is revising its plans to raise new capital after U.S. private equity fund Texas Pacific Group pulled out of its agreement to invest.
TPG withdrew after Moody's rating service downgraded Bradford & Bingley's long-term debt ratings from A3 to Baa1. TPG's agreement to invest 179 million pounds (US$356 million) in B&B included an escape clause in the event of downgrading.
Bradford & Bingley, a specialist in mortgages for the purchase of rental properties, now hopes to raise 400 million pounds (US$800 million) entirely through a cash call to shareholders.
The rights issue is supported by major shareholders M&G Investment Managers, Legal & General Investment Management, Insight Investment and Standard Life Investments, will have an unchanged subscription price of 55 pence (US$1.09) per share.
Standard Life and Legal & General previously had backed a proposed offer by financier Clive Cowdery's company, Resolution PLC. Cowdery withdrew after B&B refused to opens its books to his team.
Bradford & Bingley fell 8.6 percent to 55.75 pence (US$1.11) in early trading on the London Stock Exchange. They had traded above 180 pence in early May.
"Management have bungled here, in our view, and the rights process is now being lengthened meaning likely further stock price falls," said Alex Potter, banking analyst at Collins Stewart, who rated the stock as "sell."
Potter said the downgrade to Baa1 _ "three notches above junk" _ is "relatively startling for a deposit-taking bank in an OECD (Organization for Economic Cooperation and Development) economy, but we categorically do not believe there is a material risk of depositors losing money."
In May, the company announced a rights issue at 82 pence per share to raise 300 million pounds (US$596 million).
That was revised in June after B&B reported that pretax earnings, excluding one-time costs, were down 48 percent to 56 million pounds ($110 million) in the first four months of the year.
TPG offered to step in with its investment in return for taking a 23 percent stake in the British lender. B&B proposed to raise an additional 258 million pounds ($513.5 million) in new capital through a rights issue at 55 pence per share.
"Whilst we are disappointed that TPG intends to terminate its subscription agreement, I am pleased that Citi and UBS and our major shareholders continue to support our proposed capital issuance," said Rod Kent, B&B's executive chairman.
"Bradford & Bingley continues to be well-funded and the capital raising will reinforce our position as one of the better capitalized banks and one of the leading mortgage and savings banks in the U.K."
Bradford & Bingley has been hit by credit-related write-downs, soaring wholesale borrowing costs and a growing number of borrowers falling behind on payments.
The lender has been particularly vulnerable to the crisis in money markets because it previously raised more than a quarter of its capital through wholesale funds, but analysts said that the deep discount to its rights issue suggested a wider problem with seeking extra funding from shareholders.
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