UK bank B&B ups rights issue size after TPG quits

LONDON - Bradford & Bingley plans to increase its rights issue to 400 million pounds ($794 million) after US private equity firm TPG Capital pulled out of a plan to buy a stake, sending its shares lower.



By (Reuters)

Published: Fri 4 Jul 2008, 2:48 PM

Last updated: Sun 5 Apr 2015, 12:46 PM

TPG pulled out after ratings agency Moody's cut B&B's debt ratings, triggering a clause allowing TPG to terminate the agreement, B&B said in a statement on Friday.

B&B, Britain's biggest buy-to-let lender, had planned to sell TPG a 23 percent stake for 179 million pounds and raise 258 million through a rights issue. It said it would now seek to raise a net 400 million pounds through the rights issue.

Its shares fell 7.4 percent to 56.5 pence by 0730 GMT, after falling as low as 52p, below their rights issue price of 55p. The bank has not changed the subscription price for the enlarged offer.

‘For B&B, the capital position is ultimately unchanged; it will receive the same amount of capital but now from a larger rights issue,’ analysts at Cazenove said.

‘However, the trading performance remains weak, and we expect it will continue to deteriorate as impairment rises and the rating downgrade leads to additional funding costs,’ Cazenove added, keeping an ‘underperform’ stance on the shares.

B&B said several of its biggest shareholders, including Standard Life, Prudential's M&G, Legal & General and HBOS's Insight were supporting the enlarged rights issue.

Citi and UBS will still underwrite the rights issue, the bank said.

A credit trader said the new plan was good for B&B. ‘TPG pulled out, having pulled a fast one in securing a huge discount, but now Bradford is going to get a stronger investor base,’ the trader said.

But equity analysts said there was a risk that much of the cash call would be left with the underwriters. Retail investors own about 40 percent of B&B's shares, and they are typically less likely to take up their rights, especially with the shares near the offer price and UK household finances under strain.

Shareholders had been due to vote on the TPG investment and rights issue plan on Monday, but the bank said the meeting would be adjourned, probably until the week of July 14, and a supplementary prospectus issued.

‘SUBSTANTIAL DETERIORATION’

The bank is in need of cash after a slump in the UK housing market. But B&B's emergency fundraising plans have been in turmoil, prompting criticism of Executive Chairman Rod Kent's handling of the crisis.

The lender was forced to slash the price of a rights issue and bring in TPG as an outside investor a month ago after issuing a stark warning on the state of the UK mortgage market, saying borrowers were defaulting on loans faster than expected.

Entrepreneur Clive Cowdery tried to gatecrash the TPG deal with his own plan to inject 400 million pounds into B&B, but walked away last week, saying the lender's refusal to open its books made a deal impossible.

Cowdery had said he was backed by investors representing over a quarter of B&B's shares, including the four who are now supporting the enlarged rights issue.

It had proposed to buy B&B shares at 72p each and would allow all shareholders to invest on the same terms.

Moody's said it cut the long-term bank deposit rating and the senior debt rating of B&B to Baa1 from A3 to reflect ‘the substantial deterioration in the bank's asset quality so far in 2008 as well as the expectation that this will weaken further during the rest of the year’.

Other negative factors cited by Moody's included B&B's obligation to buy 350 million pounds of mortgages from GMAC each quarter and the potential for more writedowns on risky assets.


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