12th Aug

Specialist Lender Paragon Group Offers Retail Investors 6% Returns

Nine year retail bond gives investors the opportunity to benefit from the growth

 in the UK's buy-to-let sector


FTSE 250 buy-to-let and specialist consumer lender Paragon Group has launched its third foray onto ORB  with a nine year retail bond offering 6% per annum

Maturing on August 28th 2024, the bonds have a minimum initial subscription of £2,000 and are available in multiples of £100 thereafter.

The offer period is due to close at noon on August 24, 2015 although demand for recent issues has been high resulting in a shortened offer period and/or reduced allocation.

Its two previous issues raised £185m offering 6% and 6.125% respectively in Febuary 2013 and January 2014.

The Solihull-based company has £10.5bn in loan assets under management and in February 2014 established Paragon Bank, a banking subsidiary.

Chief Executive of Paragon, Nigel Terrington, said: ‘We are delighted with the launch of our third retail bond, as part of our on-going funding diversification strategy and supporting the continued growth of the business.

‘In the nine months to June 30, 2015 the group reported operating profits of £98m, an 11% increase on the same period last year. The group also saw further strong growth in its new lending activity.


‘The outlook for our businesses is strong and this latest retail bond in our programme represents another opportunity for investors to share in our development as we continue to build the Group's franchise.’

Its latest six monthly figures show that Paragon’s pre-tax profits rose 7.6% to £62.6m in that period; its shares currently yield 2.32%.

The cash raised by its previous retail bonds represents only a fraction of the company’s total debt which as of March 31st 2015 was £10.06bn - up from £9.66bn the year before.

Paragon has recently achieved a strong recovery in its buy-to-let lending business although the announcement in the recent budget that tax relief on mortgage payments to the basic rate of income tax could dampen demand from landlords.

As ever any investment in a retail bond is at risk should the borrower fail, with no recourse to the Financial Services Compensation Scheme.

Paragon’s previous issues currently trade at 105.54 and 102.75 in the secondary market on the LSE’s Order Book for Retail Bonds which indicates that those wishing to cash in their bonds before maturity may be able to do so at a premium.

However, the secondary market premium is lost if the bond is held to maturity as the loan is repaid at ‘par’ – £100.

£10,000 invested in the new issue will return the full investment in 2024 whereas the same sum invested in the bond issued in February 2013 in the secondary market will return just £9475.

However, these bonds have risen in price during a period when bonds in general have delivered a far better return than the meagre returns achieved on cash and savings products and it is widely expected that interest rates will soon begin to rise which is already depressing bond prices.

Typically, bond prices fall if interest rates begin to rise and any increase in inflation erodes the value of a bond. If this were to happen, holding the bonds to maturity will ensure that the full sum is returned although the fact that this bond is relatively long-dated means that it is vulnerable to the negative effect of inflation over a nine year period.

Those holding corporate bond will be carefully watching the central banks as any increase in interest rates could herald a rush to the ‘sell’ button with prices adjusted accordingly.


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