Paragon buys development lender for £48m

Paragon buys development lender for £48m

Paragon Banking has bought the entire share capital of Titlestone Property Finance in a £48m deal.

The deal is part of Paragon's strategy to diversify into specialist lending markets through a combination of organic start-ups and acquisitions.

As part of the contract, Paragon is acquiring a portfolio of development finance loans for £226m from a series of special purpose vehicle companies (SPVs). 

Titlestone, which provides residential development finance, and the SPVs are owned by funds ultimately controlled by Oaktree Capital Management L.P.

Nigel Terrington, chief executive of Paragon, said: "This acquisition demonstrates our continued progress in diversifying the group's income streams into specialist lending markets.

"The UK development finance market represents an excellent long-term opportunity and Titlestone will enable us to accelerate our growth in this area. 

"The management team have an outstanding track record and the business is a strong cultural and operational fit with our existing development finance business and the wider group."

The Titlestone team will be combined with Paragon's existing residential development lending activities under the leadership of Robert Orr, who is the managing director of Titlestone.

Support services will be provided from Paragon's existing operations.

The transaction is expected to enhance Paragon's post tax profits by a high single-digit percentage in its first full year. 

It will not change the group's stated dividend policy.

Following the transaction, the remainder of the group's 2018 share buy-back programme will be suspended, with the lender's future capital management plans being assessed at the year end and announced with the preliminary results on 21 November 2018.

The purchase is subject to customary closing adjustments. 

The final fair value and goodwill elements of the transaction will be determined as part of the group's year end accounting process. 

In addition to the portfolio being acquired by Paragon, Oaktree is selling a further portfolio of loans to CarVal Investors, which represents 49 per cent of total gross loan balances at completion. 

Paragon will also service this second portfolio.

This comes as Paragon started residential development finance lending in 2016 and to date, a total of £118m has been advanced with a pipeline of a further £130m. 

Paragon considers the development finance market to be particularly attractive, with strong long-term growth prospects because it believes the market benefits from strong underlying demand based on the shortage of housing in the UK and requires a specialist focus on customer requirements, risk assessment and in-life portfolio management. 

To date, Titlestone has committed more than £2.2bn across more than 330 developments, with a strong repeat business rate.

In the 12 months to June 2018 the business advanced £274m of new funds to its developer clients. 

The pipeline remains strong at a little under £250m.