UK investors rescue B&B cash call

Bradford & Bingley has confirmed that its plan to raise £400m has been rescued by a group of UK investors, reported The BBC.

B&B's plans were put into doubt after US private equity firm Texas Pacific Group (TPG) walked out on a deal to pay £179m for a 23% stake in the UK lender.

The mortgage lender will now sell £400m of shares in a rights issue, which is supported by Legal & General, Standard Life, M&G and Insight Investment.

B&B shares fell more than 18%, dipping below the rights issue price level.

A rights issue is when a company offers shares at a discount to existing investors, giving them the opportunity to increase their holdings and raise money for the company to use to shore up its balance sheet.

B&B is offering investors its new stock at a price of 55 pence per share.

This was a significant discount to its share price on 13 May when it closed at 158.8p.

But by the close of Friday trade, B&B shares dropped to 50p, down 11p.

B&B, one of the UK's largest buy-to-let mortgage lenders, is looking to raise money because the group has been hit by the credit crisis and the sharp downturn in the property market.

TPG walked away from its deal to buy the stake in B&B after Moody's, the credit rating agency, announced it was downgrading the long-term debt of the UK mortgage lender.

This left B&B with a multi-million pound hole in its plans to raise cash.

BBC Business editor Robert Peston said the City watchdog, the Financial Services Authority, played a central role in helping to organise what will be seen as an emergency fund-raising.

"It would have been disastrous for confidence in the bank if new money was not found to replace TPG," he said.