Update: B&B rights issue worries grow; EGM postponed

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By Lee Wild

Date: Monday 07 Jul 2008

LONDON (ShareCast) - Fears that Bradford & Bingley will struggle to get its £400m fundraising away heightened after the mortgage lender’s shares slumped to a record low further beneath the rights issue price.

The bank was worth little more than £253m late morning, the least since its float at the end of 2000, following an 18% tumble on further selling after Friday’s rating downgrade by Moody’s.

A “substantial deterioration in the bank's asset quality” forced the ratings agency to drop its long-term credit rating to Baa1 from A3.

It is thought that scared away US private equity group TPG Capital, which had agreed to take a 23% stake in the lender worth £179m.

At their worst, the shares were trading at 41p each Monday, some 14p below the rights price, raising concerns that shareholders will be deterred from stumping up fresh cash.

The TPG deal had formed part of a plan that involved a reduction in the rights issue to £258m and a drop in the issue price to 55p from 82p previously.

Several of B&B’s large institutional shareholders are expected to have to step in and rescue its cash call after TPG’s volte-face.

Last month’s stubborn rejection of overtures from Resolution prompted insurance entrepreneur Clive Cowdery’s bid vehicle to scrap plans to invest £400m in B&B.

Resolution and the bank's four biggest investors, Standard Life, Legal & General Investment Management, M&G and Insight, had wanted to kill the bank’s existing fundraising plans.

It has also emerged that B&B will have to pay fees to Goldman Sachs, which gave the bank advice on TPG’s proposed investment, even though the deal fell through.

B&B is to cough up a basic "success fee" plus an additional amount on the completion of a new funding package, according to the Sunday Telegraph.

At the bank's Extraordinary General Meeting (EGM) today it was agreed by a show of hands to adjourn the meeting until 17 July. No other business was conducted at the EGM.

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