Bradford & Bingley £400m rights issue to cost £55m

The Bradford & Bingley (B&B) rights issue is likely to cost the buy-to-let lender £55 million, even though it is raising just £400 million.

According to information released to shareholders following the announcement of a recalibrated rights issue on July 3rd, B&B will spend the sum following the collapse of a deal with American investment vehicle Texas Pacific Group (TGP).

While B&B had initially intended to raise the sum through a rights issue, the involvement of TPG saw the rights issue cut back to £170 million – with TGP taking a 23 per cent stake in the company.

However, credit rating agency Moody's cut the B&B credit rating one notch on Friday – reducing it from A3 to Baa1, the lowest rating of a UK bank - allowing TGP to withdraw and forcing B&B to return to its initial plan.

It is this delay which is thought to have boosted the cost of the deal.

Under the present proposals 828 million new shares will be issued in connection with the enlarged rights issue, offered to buyers on the basis of 67 new shares for every 50 existing shares.

It is thought Bradford & Bingley's major shareholders, which include M&G Investment Managers, Legal & General Investment Management, Insight Investment and Standard Life Investments, will now step in and rescue the company.

Shares will be offered at 55 pence a time.

However, in a further blow to the already beleaguered organisation, the collapse of the TGP deal has precipitated a sharp slide in the company's share price.

Yesterday the stock fell 16 per cent to a low of 42 pence, already some 13 pence below the rights issue price. Furthermore, at opening today stock in Bradford & Bingley had fallen a further 17 per cent, to just 34.75 pence.

The extraordinary meeting needed to approve the rights issue will now be held next Thursday in Sheffield.

Chris O'Toole