Specialist lender Paragon Group (PAG) has hit the road with a retail bond aimed at investors who want an indirect way of accessing the UK's buoyant buy-to-let housing market. The lender, which both securitises the lending its makes, as well as managing portfolios for third parties, is looking to add directly to its corporate cash pile by issuing a senior unsecured bond that will pay a relatively generous annual coupon of 6 per cent and which matures in Dec 2020.
Some market observers reckon that Paragon could have issued a successful bond with a lower coupon, given its status as a FTSE 250 company, but it seems the priority was to test the effectiveness of the retail market in raising funds. The company has already indicated at a roadshow that the fundraising is not intended as a short-term refinancing exercise as most of Paragon's lending is backed through to maturity, though the company does have a £110m corporate bond due in 2017.
Investors looking to buy the bond will note that Paragon recently returned to profits growth - pre-tax profits were a record £95m in 2012 - after four lean years in the aftermath of the credit crunch. This reflects the wide margins that specialist lenders were able to charge after banks largely abandoned the market in an effort to preserve their capital. Management also reckons the next few years will see more disposals of loan portfolios by banks who wish to reallocate their capital, in which case a large cash reserve will come into its own. Paragon's overall financial situation looks very sound, the gearing ratio is about 10 times, perhaps half the equivalent for a building society and cash generation at the last results topped £154m.
The offer is open until 26 Feb and investors can subscribe for minimum bundle of £2,000, with multiples of £100 thereafter. There are no complicated covenants, but it should be noted that there is a semi-annual coupon up to September 2020, with an extra coupon for the final 3-month period. Paragon will probably issue between £50m-£75m of bonds.
