The Wall Street Journal-20080112-Credit Crunch- Northern Rock Agrees to Sell Loans To Help Pay Debts
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Credit Crunch: Northern Rock Agrees to Sell Loans To Help Pay Debts
LONDON -- Northern Rock PLC on Friday said it agreed to sell a mortgage portfolio to J.P. Morgan Chase & Co. for GBP 2.25 billion ($4.42 billion), in a move to help pay off the lender's debts to the Bank of England.
The bank sold the portfolio of home-equity release mortgages, with assets valued at GBP 2.2 billion, at a premium of 2.25%, or about GBP 50 million. Northern Rock shares rose two pence, or 2.4%, to 87.25 pence in London.
Northern Rock became the United Kingdom's highest-profile casualty of the credit crunch in September, when it was forced to ask the Bank of England for emergency funds. The bank will use proceeds from the asset sale to reduce its funding from the central bank, which totals about GBP 26 billion.
"This is a relatively small transaction . . . but it is a positive development in the company's ongoing strategic review. It illustrates the quality of our assets, which has enabled us to achieve a sale at a premium despite continuing difficult financial markets," said Chief Executive Andy Kuipers.
Meanwhile, shares in U.K. specialist buy-to-let lender Paragon Group of Cos. fell 40.50 pence, or 40%, to 61.50 pence after it launched a GBP 287 million rights issue that discounted the shares by 90% to the Jan. 10 closing price. Paragon said it will use the cash to repay an existing GBP 280 million credit line, as its lenders have refused to extend credit. Paragon is the first U.K. mortgage lender to launch a capital increase to support its funding needs.
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Margot Patrick and Digby Larner contributed to this article.
