B&B bosses stand accused of ‘bungling’ £400m fundraising

Jul 5 2008 by Iain Laing, The Journal

BRADFORD & Bingley’s bosses have been accused of “bungling” a vital £400m fundraising after being forced into yet another overhaul of their plans.

The lender said its major investors were stepping in to back a new deal after a US private equity firm dramatically withdrew a £179m cash injection last night.

It is the second time directors have had to alter their fundraising plans since first announcing they needed the extra money in May. As B&B shares fell by as much as 10% at one point yesterday, Collins Stewart banking analyst Alex Potter said: “Management have bungled here.”

Texas Pacific Group (TPG) had been lined up to buy 23% of the company, with another £258m coming from a rights issue. But TPG walked away after B&B was effectively flagged up as a greater investment risk by ratings agency Moody’s.

The buy-to-let mortgage specialist, which has been hit by the credit market freeze and higher mortgage arrears, is raising the money to help shore up its finances.

B&B said a group of its largest shareholders including M&G Investment Managers, Legal & General Investment Management, Insight Investment and Standard Life Investments were now backing an enlarged £400m cash call.

Panmure Gordon analyst Sandy Chen added: “In our view, B&B must now run the gauntlet of an emergency rights issue, more difficult funding conditions, and a rapidly deteriorating macro-(economic) environment.”

B&B said its latest plans would raise £400m after fees, and was being underwritten by banks Citi and UBS.

The lender said TPG’s withdrawal happened after Moody’s downgraded its unsecured and long-term debt ratings, which effectively tells the market that the firm is a greater investment risk.

B&B’s executive chairman Rod Kent said: “While 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.

“Bradford & Bingley continues to be well-funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK.”

The funding plan involving TPG had attracted a raft of criticism from investor groups. The Association of British Insurers (ABI) branded it “unacceptable” because it removed the right of pre-emption for shareholders – in which new shares should be offered to existing shareholders in proportion to their existing holdings.

And the UK Shareholders Association (UKSA) also urged smaller shareholders – which hold around 35% of the group’s stock – to vote down the plans.

The lender first announced in May a £300m rights issue to help shore up its balance sheet, after earlier denying the need for the extra cash. Then last month B&B announced it was bringing TPG on board, and reducing the size of the rights issue to £258m.

A rival funding bid led by investment group Resolution, involving the injection of £400m by a series of major investors, was rebuffed by B&B last week.