Re: Rights issue

Paragon Group Of Companies PLC
11 January 2008


The Paragon Group of Companies PLC
11 January 2008

  NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY, IN OR INTO THE
                   UNITED STATES, CANADA, JAPAN OR AUSTRALIA

THIS ANNOUNCEMENT IS AN ADVERTISEMENT AND NOT A PROSPECTUS AND INVESTORS SHOULD
NOT SUBSCRIBE FOR OR PURCHASE ANY SHARES REFERRED TO IN THIS ANNOUNCEMENT EXCEPT
ON THE BASIS OF INFORMATION TO BE CONTAINED IN THE PROSPECTUS TO BE PUBLISHED
TODAY BY THE PARAGON GROUP OF COMPANIES PLC IN CONNECTION WITH THE PROPOSED
RIGHTS ISSUE. COPIES OF THE PROSPECTUS WILL, FOLLOWING PUBLICATION, BE AVAILABLE
FROM THE COMPANY'S REGISTERED OFFICE

                       THE PARAGON GROUP OF COMPANIES PLC

                          PROPOSED SHARE CONSOLIDATION

              PROPOSED 25 FOR 1 RIGHTS ISSUE TO RAISE £287 MILLION

The Paragon Group of Companies PLC ('Paragon' or the 'Company'), the UK
specialist buy-to-let and consumer finance lender, today announces its proposed
Share Consolidation and Rights Issue.

Highlights:

- Proposed 25 for 1 Rights Issue, post consolidation, fully underwritten by UBS
to raise £287 million before expenses

- Proposed Share Consolidation on the basis of 1 new £1 share for 10 existing 10
pence shares

- Proceeds of Rights Issue, together with existing cash resources, will be used
to repay in full the £280 million secured revolving credit facility ('Corporate
Facility') by 27 February 2008, its maturity date

- Repayment of Corporate Facility removes this refinancing uncertainty

- High quality and profitable asset base fully match funded to maturity

- Company is continuing to seek additional warehouse and working capital
financing to enable higher volumes of origination and lending activity

Commenting on today's announcement, Robert Dench, Chairman of Paragon said:

'The Rights Issue announced today provides Paragon with financial stability and
secures the value inherent in the Group today for its Shareholders. The Board
believes the Rights Issue will provide Paragon with a platform from which it can
pursue further funding, so the Company can return to writing significant volumes
of profitable business when credit markets reopen. We are very grateful to our
leading Shareholders for the support they have shown the Group and its
management during the recent period of uncertainty and look forward to the
future with confidence.'

This summary should be read in conjunction with the full text of this
announcement.

For further information, please contact:

The Paragon Group of Companies PLC
Nigel Terrington, Chief Executive
Nick Keen, Finance Director
Tel: [phone]

UBS
Adrian Haxby
Neil Patel
Tel: [phone]

Fishburn Hedges
Morgan Bone
Tel: [phone]
Mobile: [phone]

General

UBS Investment Bank, which is authorised and regulated in the UK by the FSA, is
acting as financial advisor, sponsor, corporate broker and underwriter to the
Company and no one else in connection with the Rights Issue and will not be
responsible to anyone other than the Company for providing the protections
afforded to clients of UBS Investment Bank or for providing advice in relation
to the Rights Issue or for any other matters referred to in this announcement.

Apart from the responsibilities and liabilities, if any, which may be imposed on
UBS Investment Bank by FSMA or the regulatory regime established thereunder, UBS
Investment Bank accepts no responsibility whatsoever for the contents of this
announcement or for any other statement made or purported to be made by it, or
on its behalf, in connection with the Rights Issue. UBS Investment Bank
accordingly disclaims all and any liability whether arising in tort, contract or
otherwise (save as referred to above) which it might otherwise have in respect
of such announcement or any such statement.

The distribution of this announcement into a jurisdiction other than the UK may
be restricted by law and therefore persons into whose possession this
announcement comes should inform themselves about and observe any such
restrictions. Any failure to comply with any such restrictions may constitute a
violation of the securities laws of any such jurisdiction.

A combined circular to Shareholders containing both the notice of the EGM and
the prospectus relating to the Rights Issue (the 'Prospectus') is expected to be
dispatched today. The Prospectus gives further details of the Rights Issue and
the Share Consolidation and contains a notice of an Extraordinary General
Meeting of the Company, to be held at 10.00 a.m. on 28 January 2008 at UBS
Limited, seventh floor, 1 Finsbury Avenue, London EC2M 2PP. The Prospectus gives
further details of the New Ordinary Shares, the Nil Paid Rights and the Fully
Paid Rights to be offered pursuant to the Rights Issue and the Company's
business.

This announcement does not constitute or form part of any offer or invitation to
sell or issue, or any solicitation of any offer to acquire, New Ordinary Shares,
Provisional Allotment Letters, Nil Paid Rights, Fully Paid Rights and/or to take
up any entitlements to Nil Paid Rights in any jurisdiction in which such an
offer or solicitation is unlawful.

The New Ordinary Shares, the Provisional Allotment Letters, the Nil Paid Rights
and the Fully Paid Rights have not been and will not be registered under the
Securities Act or under any relevant securities laws of any state or other
jurisdiction of the US and may not be offered, sold, taken up, exercised,
resold, renounced, transferred or delivered, directly or indirectly, within the
US absent of registration under the Securities Act or an applicable exemption
from the registration requirements of the Securities Act and in compliance with
state securities laws. The New Ordinary Shares, the Provisional Allotment
Letters, the Nil Paid Rights and the Fully Paid Rights have not been approved or
disapproved by the SEC, any state securities commission in the US or any US
regulatory authority, nor have any of the foregoing authorities passed upon or
endorsed the merits of the offering of the New Ordinary Shares, the Provisional
Allotment Letters, the Nil Paid Rights, the Fully Paid Rights or the accuracy or
adequacy of the Prospectus. Any representation to the contrary is a criminal
offence in the US. Offers of the New Ordinary Shares, the Provisional Allotment
Letters, the Nil Paid Rights and the Fully Paid Rights are being made outside
the US in offshore transactions within the meaning of and in accordance with
Regulation S under the Securities Act.

In addition, none of the New Ordinary Shares, the Provisional Allotment Letters,
the Nil Paid Rights or the Fully Paid Rights will qualify for distribution under
any of the relevant securities laws of any of the Excluded Territories.
Accordingly, the New Ordinary Shares, the Provisional Allotment Letters, the Nil
Paid Rights and the Fully Paid Rights may not be offered, sold, taken up,
exercised, resold, renounced, transferred or delivered, directly or indirectly,
within any of the Excluded Territories.

This announcement contains forward-looking statements, which are based on the
Board's current expectations and assumptions and involve known and unknown risks
and uncertainties that could cause actual results, performance or events to
differ materially from those expressed or implied in such statements. These
forward-looking statements are subject to the risk factors described in the
section of the Prospectus entitled 'Risk Factors'. It is believed that the
expectations reflected in these statements are reasonable, but they may be
affected by a number of variables which could cause actual results or trends to
differ materially. Each forward- looking statement speaks only as of the date of
the particular statement. Except as required by the Listing Rules, the
Disclosure and Transparency Rules, the Prospectus Rules, the London Stock
Exchange or otherwise by law, the Company expressly disclaims any obligation or
undertaking to release publicly any updates or revisions to any forward-looking
statements contained herein to reflect any change in the Company's expectations
with regard thereto or any change in events, conditions or circumstances on
which any such statement is based.

No statement in this announcement is intended as a profit forecast.

Appendix I contains the expected timetable of principal events in respect of the
Share Consolidation and Rights Issue.

Appendix II contains the definitions of certain terms used in this announcement.

  NOT FOR DISTRIBUTION OR TRANSMISSION, DIRECTLY OR INDIRECTLY, IN OR INTO THE
                   UNITED STATES, CANADA, JAPAN OR AUSTRALIA

Introduction

The Company proposes to raise approximately £287 million (before expenses) by
way of a Rights Issue underwritten by UBS in full. The Rights Issue will take
place alongside a Share Consolidation under which the Existing Ordinary Shares
are to be consolidated into £1 Ordinary Shares on a one for 10 basis. Pursuant
to the Rights Issue the Directors propose to offer New Ordinary Shares at £1 per
share to all Qualifying Shareholders on the basis of five New Ordinary Shares of
£1 each for every two Existing Ordinary Shares of 10 pence each that each
Qualifying Shareholder holds at the close of business on the Rights Issue Record
Date.

In effect, taking into account the Share Consolidation, the Rights Issue offer
is being made on a 25 for one basis and at the Rights Issue Price of £1 per £1
New Ordinary Share.

In effect, this represents a 90.2 per cent. discount to the Closing Price of an
Existing Ordinary Share of 102 pence on 10 January 2008. If a Qualifying
Shareholder does not take up any of his entitlement to New Ordinary Shares, his
proportionate shareholding will be diluted by 96.2 per cent. However, if a
Qualifying Shareholder takes up his rights in full, he will, following the Share
Consolidation and the Rights Issue being completed and subject to the treatment
of fractions, have the same proportional voting rights and entitlements to
distributions as he had on the Rights Issue Record Date.

The Share Consolidation and Rights Issue are conditional upon the Shareholders
authorising the consolidation and increase in the Company's share capital and
authorising the Directors to allot and issue the New Ordinary Shares. Such
approval will be sought at the Extraordinary General Meeting to be held at 10.00
a.m. on 28 January 2008 at the offices of UBS Limited, seventh floor, 1 Finsbury
Avenue, London EC2M 2PP.

A prospectus relating to the Rights Issue and convening an Extraordinary General
Meeting to be held at 10.00 a.m. on 28 January 2008 to approve the Rights Issue
and the Share Consolidation will be published today.

A request has been made to the UK Listing Authority and to the London Stock
Exchange to reflect, on the Official List and the London Stock Exchange's main
market for listed securities respectively, the redenomination of the Existing
Ordinary Shares as £1 Ordinary Shares. In addition, application has been made to
the UK Listing Authority for the New Ordinary Shares (nil and fully paid) to be
admitted to the Official List and to the London Stock Exchange for the New
Ordinary Shares (nil and fully paid) to be admitted to trading on the London
Stock Exchange's main market for listed securities. It is expected that
Admission will become effective and that dealing in the New Ordinary Shares will
commence on the London Stock Exchange, nil paid, at 8:00 a.m. on 29 January
2008.

Background

Paragon relies on wholesale sources of funding for its lending businesses
because it is not a deposit taking institution. The Group's business has been
dependent upon three principal sources of funding: the wholesale ABS markets,
interim warehouse funding and working capital provided by banks.

The Group has been one of the most active UK issuers of asset backed securities
in the ABS markets. This has been the predominant source of the Group's funding
over the past 16 years and the Group currently has approximately £10 billion of
such securities outstanding issued by 15 Group companies, each of which is a
special purpose vehicle company ('SPV'). The Group last issued securities into
the ABS markets in an amount of £1.0 billion in July 2007. Since that time,
credit market conditions globally have deteriorated considerably in the wake of
the US sub-prime crisis and the Group has been unable to issue further
securities into the ABS markets on commercially acceptable terms. Prior to
accessing the ABS markets, the Group's policy is to fund new assets (including
both mortgage loans and consumer finance) through subsidiaries which are SPVs.
The SPVs raise the funding necessary for new advances by drawing on a facility
(the 'Warehouse Facility') which currently has a borrowing limit of £2.325
billion and is provided by a syndicate of banks (the 'Warehouse Facility
Banks'). As at 30 November 2007, there was £1.556 billion outstanding under this
Warehouse Facility. Security has been granted to the Warehouse Facility Banks
over the assets funded using the Warehouse Facility and over certain other Group
rights and assets.

It is expected that, from 29 February 2008, the Warehouse Facility will cease to
be available to fund new advances, although in accordance with its terms, assets
already funded at that date will remain funded to maturity. The Board expects
the total amount outstanding under the Warehouse Facility to be approximately
£1.9 billion at 29 February 2008. It has not been possible to agree with the
Warehouse Facility Banks commercially acceptable terms for any extension of the
availability period for new advances under the Warehouse Facility. However, it
is expected that the Warehouse Facility will continue to fund the warehoused
assets until such time as the ABS markets become accessible to the Group on
commercially acceptable terms for the purpose of refinancing such assets.

In addition, the Group currently has the benefit of a secured revolving credit
facility of up to £280 million (the 'Corporate Facility') provided by a
syndicate of banks (the 'Corporate Facility Banks') to each of Paragon and
Paragon Finance PLC ('PFPLC'). The Corporate Facility may be utilised for
general corporate and working capital purposes. Security (the 'Corporate
Facility Security') has been granted to the Corporate Facility Banks over
effectively all of the assets of the Group which are not otherwise secured in
respect of the Warehouse Facility or the asset backed securities issued by the
Group.

The Corporate Facility matures and falls due for repayment on 27 February 2008.

Reasons for the Rights Issue and Use of Proceeds

In view of the potential funding uncertainty faced by the Group, the Company
entered into the Standby Letter with UBS on 19 November 2007 in order to provide
it with a fallback source of funding to repay the Corporate Facility on its
maturity should it not prove possible to reach agreement prior to such maturity
with the Corporate Facility Banks for its renewal or extension. Since November
2007 the Corporate Facility Banks have informed the Company that they will not
renew or extend the Corporate Facility and require full repayment on or before
27 February 2008 in accordance with its terms. Consequently the Company has
actively explored a range of possible alternatives. However, in view of the
current conditions in the banking markets and the proximity of the repayment
date of the Corporate Facility, it has not been possible to date to secure
funding from alternative sources to replace the Corporate Facility.

In order, therefore, to be in a position to repay the Corporate Facility on its
due date and as a result remove the risk of default under that facility, the
Company is proposing the Rights Issue, which has been underwritten in full by
UBS, to raise an amount before expenses of £287 million. The proceeds of the
Rights Issue together with the existing cash resources of the Company will
ensure the repayment of the Corporate Facility thereby protecting the
shareholder value in the Group.

The Board believes that this shareholder value comprises four principal
elements:

(i) the embedded value of the future income stream to be derived from the high
quality portfolio of assets outstanding, which as at 30 November 2007 total some
£11.3 billion. The effect of the Warehouse Facility and SPVs and the securities
they have issued in the ABS markets is that all of these assets are fully funded
to maturity;

(ii) the net assets of the Group, which reflect the capital deployed in support
of the lending business, largely in the form of credit enhancement and other
financial collateral held within the SPVs. Over time, with the amortisation of
the asset portfolio, it is anticipated that this capital would be recycled to
support further lending or, if not otherwise required by the Group, the Board
would take steps to return the capital to Shareholders;

(iii) the goodwill of the Group represented by the contingent value of new
business that the Group may be expected to originate in the future, based on its
established reputation, customers, distribution network and its strong market
share; and

(iv) the strategic value of the Group to third parties wishing to enter or
increase their presence in the BTL market in the UK.

By subscribing to the Rights Issue and thereby enabling repayment of the
Corporate Facility, Shareholders will be increasing the equity capital base and
net assets of the Group and protecting the value of their existing investment in
the Group. They will also be protecting the Group's ability to create further
value in the future through additional new business. This is subject to the
availability of further warehouse facilities and associated working capital
facilities and the ability of the Group to access the ABS markets in due course
on commercially acceptable terms, both of which are dependent upon the easing of
credit markets generally once the current 'credit crunch' has passed. The Board
continues actively to explore potential financing opportunities to enable the
Group to further develop its business.

Current Trading, Prospects and Strategy

For the past 12 years the Group has pursued a strategy of careful growth in core
markets which offer high quality assets, funded portfolio by portfolio to
maturity through the ABS markets. This has produced consistent profit growth
over the period and particularly in recent years in view of the strength of the
BTL lending market in the UK.

The Group achieved record profits before tax in the year ended 30 September
2007, the majority of which were generated by the Group's BTL businesses, a
sector which the Directors believe has strong credit defensive qualities and
long-term growth prospects, reflecting an increased structural demand for rented
property in the UK. Since 30 September 2007, the Group's business has continued
to operate profitably in line with management's expectations.

The Board believes that, by virtue of its portfolio of high quality loan assets
and its operational infrastructure, the Group is well placed to manage its
portfolio of assets in the current market conditions. The Group has rigorously
applied conservative credit approval criteria in its lending activities,
including, for its BTL mortgage businesses, a normal maximum 85 per cent. loan
to value ('LTV') limit and a normal minimum rent to interest cover of 125 per
cent. The average indexed LTV ratio across the Group's BTL portfolio was 66.6
per cent. as at 30 September 2007, reflecting a significant degree of equity
protection in its customers' portfolios. The credit performance of the Group's
BTL portfolio has been exemplary, with a three months or over arrears rate of
0.18 per cent. of accounts across the portfolio as at 30 September 2007. Apart
from the conservative lending criteria described above, this is due to the
particular characteristics of the BTL lending market, including the ability of
lenders to divert rental payments from tenants in the event of borrower default.
As at 30 September 2007, only 441 out of the Group's total of 75,869 BTL
mortgage accounts had indexed LTVs in excess of 90 per cent. (using the
Nationwide Quarterly Index at September 2007). This represents an aggregate
excess of £2.1 million above that level in the total BTL book of £9.95 billion
and serves to illustrate the credit defensive policy of Paragon's BTL portfolio
within PML and MTL.

All the Group's assets in its existing SPVs (which include those in the
Warehouse Facility) are match funded to maturity. Assuming the Rights Issue is
completed successfully, the Group has funding available for all other assets
until at least 2017 at known coupons over LIBOR. This being so, the Board
expects that the Group's existing portfolio of assets will continue to generate
positive margins and cash flow for the remainder of the asset lives. This
revenue will decline over time, however, as assets within the portfolio are
redeemed.

The Board believes that the BTL lending market in the UK will continue to offer
attractive opportunities and returns for lenders. This is supported by strong
demographic factors and the continuing supply restrictions expected to affect
the UK residential property sector generally. The Group has a well developed and
experienced customer base which is well positioned to prosper in these
conditions. The Board therefore intends to continue to pursue actively all
prudent funding options open to it in the future to maintain and develop the
Group's business for the benefit of Shareholders. It will also continue to
explore possible strategic options for the enhancement of shareholder value.

If the Rights Issue proceeds, the Board will continue to seek appropriate
additional working capital and warehouse financing to enable the Group to
originate further new business in the future and to act as an originator of
assets for third parties through the Group's network of brokers and other
intermediaries, thus generating commission income rather than net interest
margin as at present.

This will be in addition to any origination permitted within the existing
funding arrangements, comprising a small volume of mortgage lending until 28
February 2008 as Paragon completes on outstanding mortgage offers. Beyond this
date, new mortgage business is likely to be limited to further advances on
existing mortgages financed by available redemption funds in the SPVs. Some new
consumer finance lending will be possible using substitution capacity in
existing financing vehicles. Furthermore, originations under any new warehouse
facilities which may be arranged are likely to be at significantly lower volumes
than recent levels. Ultimately, the Group's ability to grow in the future will
be dictated by its ability to regain access to the ABS markets on commercially
acceptable terms.

In these ways the Board will seek to maintain the Group's brands in the market
pending a return to more normal credit market conditions, when the Group expects
to be able to return to higher volumes of its own origination and lending
activity.

In the meantime the Board will continue to manage the business within its
available resources over time with a view to realising the embedded value
inherent in the future net cash flow attributable to the assets and to release,
for the Group's benefit, the capital supporting them in the form of credit
enhancement and other collateralisation. In these circumstances, the £1.9
billion of mortgage assets expected to be contained in the Warehouse SPV on 29
February 2008 would be expected to generate a positive net interest margin over
the remaining lives of those assets even after a step up in the cost of funding
for the mortgage assets under that facility from the current rate of 0.225 per
cent. over LIBOR to the higher rate of 0.675 per cent. over LIBOR. The remaining
assets, totalling approximately £10 billion as at 30 November 2007, financed
principally in the asset backed SPVs, are currently expected to continue to
generate net interest margin consistent with the historic performance of those
assets. The historic rate of redemption for the Group's BTL mortgage assets has
been approximately 20 per cent. per annum on a fixed pool basis. At the same
time the Group's business would be expected to continue to generate other income
(e.g. fees and commissions) in line with historic performance, but declining
over time as the absolute value of the asset base reduces. As a consequence of
any such decline in the level of the Group's activity, the Board would take
appropriate measures to reduce the Group's cost base.

If the Board concludes in due course that, as a result of continuing uncertainty
in credit markets or otherwise, it is not in Shareholders' interests to continue
to seek to develop the business further, it will take such steps as it considers
appropriate to return to Shareholders the equity capital not otherwise required
by the Group. This will be done through the orderly realisation of credit
enhancement capital and other assets employed within the Group. As at 30
November 2007, the total of the Group's investments in the SPVs was £550.8
million, comprising £100.5 million in the Warehouse SPV and £450.3 million in
the other SPVs. Moreover, in the event that it is possible in due course to
raise additional working capital finance on commercially acceptable terms, and
to the extent that some or all of the capital raised through the Rights Issue is
no longer required by the Group, the Board will seek to return any such surplus
to Shareholders.

Market Backdrop

The BTL lending market in the UK has seen a period of unprecedented growth in
recent years and was estimated by the Council of Mortgage Lenders to account for
10.0 per cent. of all mortgages outstanding by value as at 30 September 2007
(CML Research 19 November 2007). This has been driven by the attractive returns
landlords have been able to obtain through a combination of rental yields and
capital appreciation and by rising rental demand due, inter alia, to government
housing policy, affordability constraints and the demographic trends in the UK
with a growing student and immigrant population. The housing market in the UK is
entering a period of uncertainty following a period of strong house price
appreciation, rising interest rates and the more recent restrictions on market
liquidity caused by the current adverse credit market conditions. In the Board's
view, however, the long term prospects for the private rented sector in the UK
remain sound given demographic demand factors and supply restrictions in the UK
property market.

Details of the Share Consolidation

The Directors are proposing to consolidate the Company's existing share capital
on the basis described below (the 'Share Consolidation'). The purpose of the
Share Consolidation, amongst other things, is that, following the Rights Issue,
the number of shares in issue and the likely share price is appropriate for a
company of Paragon's size in the UK market.

The effect of the Share Consolidation will be that Shareholders on the Company's
register of members at the close of business on the 28 January 2008, will, on
the implementation of the Share Consolidation, hold:

     one £1 Ordinary Share for 10 Existing Ordinary Shares of 10 pence each

and in that proportion for any other number of Existing Ordinary Shares then
held. The proportion of the issued ordinary share capital of the Company held by
each Shareholder following the Share Consolidation will, save for fractional
entitlements, remain unchanged. Apart from having a different nominal value,
each £1 Ordinary Share will carry the same rights as set out in the Company's
Articles of Association that currently attach to the Existing Ordinary Shares.

To effect the Share Consolidation it may be necessary to issue an additional
number of Ordinary Shares of the Company so that the Company's issued share
capital following the consolidation is rounded up to the nearest whole pound.

Any fractional entitlements arising on the Share Consolidation will be sold in
the market on behalf of the Shareholder so entitled save that where the net
proceeds are less than five pounds (£5) per entitled Shareholder then the net
proceeds of such sale will be retained for the benefit of the Company.

A request will be made to the UKLA and to the London Stock Exchange to reflect,
on the Official List and the London Stock Exchange's main market for listed
securities respectively, the consolidation of the Existing Ordinary Shares into
£1 Ordinary Shares.

New share certificates in respect of the £1 Ordinary Shares are expected to be
posted at the risk of Shareholders by 5 February 2008 to those Shareholders who,
at the Share Consolidation Record Date, hold their shares in certificated form.
These will replace existing certificates which should then be destroyed. Pending
the receipt of new certificates, transfers of £1 Ordinary Shares held in
certificated form will be certified against the register of members of the
Company.

All Existing Ordinary Shares standing to the credit of CREST accounts will be
consolidated into £1 Ordinary Shares at 8.00 a.m. on 29 January 2008.

Principal terms of the Rights Issue

Subject to the Resolutions being passed, the Directors propose to offer New
Ordinary Shares at £1 per share by way of rights to all Qualifying Shareholders,
payable in full on acceptance, on the following basis:

  5 New Ordinary Shares of £1 each for every 2 Existing Ordinary Shares of 10
                                   pence each

that each Qualifying Shareholder holds and has registered in that Shareholder's
name at the close of business on the Rights Issue Record Date, and so in
proportion to any other number of Existing Ordinary Shares each Qualifying
Shareholder then holds.

In effect, the Rights Issue offer is being made on the following basis:

   25 New Ordinary Shares of £1 each for every one Ordinary Share of £1 each

that a Qualifying Shareholder holds taking into account the Share Consolidation
and at the Rights Issue Price of £1 per £1 New Ordinary Share.

In effect, this represents a 90.2 per cent. discount to the Closing Price of an
Existing Ordinary Share of 102 pence on 10 January 2008. If a Qualifying
Shareholder does not take up any of his entitlement to New Ordinary Shares, his
proportionate shareholding will be diluted by 96.2 per cent. However, if a
Qualifying Shareholder takes up his rights in full, he will, following the Share
Consolidation and the Rights Issue being completed and subject to the treatment
of fractions, have the same proportional voting rights and entitlements to
distributions as he had on the Rights Issue Record Date.

New Ordinary Shares representing fractional entitlements will not be allotted to
Qualifying Shareholders and, where necessary, entitlements to New Ordinary
Shares will be rounded down to the nearest whole number. The New Ordinary Shares
will, when issued and fully paid, rank pari passu in all respects with the £1
Ordinary Shares, including the right to all future dividends or other
distributions made, paid or declared after the date of their issue.

The Nil Paid Rights or Fully Paid Rights represented by a Provisional Allotment
Letter may be converted into uncertificated form, that is, deposited into CREST
(whether such conversion arises as a result of a renunciation of those rights or
otherwise). Similarly, Nil Paid Rights or Fully Paid Rights held in CREST may be
converted into certificated form, that is, withdrawn from CREST.

The Company has arranged for the Rights Issue to be underwritten by UBS in order
to provide certainty as to the amount of capital to be raised.

The Rights Issue is conditional, amongst other things, on:

(i) the passing at the Extraordinary General Meeting of the Resolutions;

(ii) Admission becoming effective by not later than 8.00 a.m. on 29 January 2008
(as the Dealing Day immediately after the date of the Extraordinary General
Meeting) or such later time on 29 January 2008, as the Company and UBS may
agree; and

(iii) the Underwriting Agreement otherwise becoming unconditional in all
respects and not having been terminated in accordance with its terms prior to
Admission.

Prior to Admission, UBS may terminate the Underwriting Agreement in certain
circumstances which the Board considers to be remote. After Admission, however,
the underwriting arrangements will not be subject to any right of termination
(including in respect of any statutory withdrawal rights).

Application has been made to the UKLA for the New Ordinary Shares (nil and fully
paid) to be admitted to the Official List and to the London Stock Exchange for
the New Ordinary Shares (nil and fully paid) to be admitted to trading on the
London Stock Exchange's main market for listed securities. It is expected that
Admission will become effective and that dealings in the New Ordinary Shares
will commence on the London Stock Exchange, nil paid, at 8.00 a.m. on 29 January
2008.

It is expected that dealings in the New Ordinary Shares, fully paid, will
commence on the London Stock Exchange at 8.00 a.m. on 21 February 2008.

The Rights Issue is expected to result in the issue of 287,010,605 New Ordinary
Shares (representing approximately 96.2 per cent. of the expected Enlarged Share
Capital). The New Ordinary Shares will, when issued and fully paid, rank pari
passu in all respects with, and will carry the same voting and dividend rights
as, the Existing Ordinary Shares and, following the Share Consolidation, the £1
Ordinary Shares. The New Ordinary Shares are also capable of being held in
certificated form.

Dividend Policy

In view of the current circumstances in which the Company finds itself, the
Board has decided not to pay a final dividend in relation to the financial year
ended 30 September 2007. The Board does not propose to pay any further dividends
until the prospects for the Company are clarified. In the circumstances where
the Rights Issue proceeds but the Group severely restricts the origination of
new business, the Board would nevertheless expect the Group's portfolio of loan
assets to generate significant cash flow over its remaining life. In these
circumstances the Board would seek to distribute such cash to Shareholders to
the extent it is available for distribution and is not otherwise needed in the
business. If, in due course, the Group is able to materially increase its levels
of loan origination by securing additional warehouse or other working capital
facilities on commercially acceptable terms, the Board will reassess the
dividend policy in the context of the profits it then expects to generate.

Overseas Shareholders

The offer by way of rights to Qualifying Shareholders who have no registered
address within the UK (other than those with registered addresses in the US, any
of the Excluded Territories or any other jurisdictions outside the UK in which
it would be illegal to make an offer) will (provided the Resolutions are passed
and the Rights Issue otherwise becomes unconditional) be made by the Company in
the same manner in which the offer is made to Qualifying Shareholders with a
registered address within the UK. In addition, in accordance with section 90(5)
of the Act, the offer by way of rights to Qualifying Shareholders who have no
registered address within the UK and who have not given the Company an address
within the UK for the service of notices will (provided the Resolutions are
passed and the Rights Issue otherwise becomes unconditional) be made by the
Company publishing a notice in the London Gazette on the Business Day following
the date on which the Provisional Allotment Letters are dispatched, stating
where copies of the Prospectus and Provisional Allotment Letter may be inspected
or, in certain circumstances, obtained on personal application, by or on behalf
of such Qualifying Shareholders.

Qualifying Shareholders who have registered addresses in or who are resident in,
or who are citizens of, countries other than the UK (including without
limitation the US and any of the Excluded Territories) should consult their
professional advisers as to whether they require any governmental or other
consent or need to observe any other formalities to enable them to take up their
entitlements to the Rights Issue.

Extraordinary General Meeting

An Extraordinary General Meeting of the Company is to be held at the offices of
UBS Limited, seventh floor, 1 Finsbury Avenue, London, EC2M 2PP on 28 January
2008 at 10.00 a.m. for the purposes of considering and, if thought fit, passing
the Resolutions. The Resolutions to be proposed are seeking approval:

1. to effect the Share Consolidation, by consolidating, with effect from the
close of business on 28 January 2008, all the authorised Existing Ordinary
Shares (issued or unissued) in the capital of the Company into £1 Ordinary
Shares on the basis of one £1 Ordinary Share for every ten Existing Ordinary
Shares, each £1 Ordinary Share having the same rights as those currently
attaching to an Existing Ordinary Share;

2. to increase the authorised share capital of the Company subject to and
conditional on the Share Consolidation from £17,500,000 to £310,000,000 by the
creation of 292,500,000 new £1 Ordinary Shares. This number of new £1 Ordinary
Shares represents an increase of approximately 1,671 per cent. of the authorised
share capital of the Company as at 10 January 2008. If this resolution is
passed, and the Rights Issue proceeds, following completion of the Rights Issue
there will be 10,840,071 authorised but unissued £1 Ordinary Shares assuming
that, (i) 287,010,605 New Ordinary Shares are issued pursuant to the Rights
Issue, and, (ii) no Existing Ordinary Shares of £1 Ordinary Shares are issued in
the period from 10 January 2008 to the completion of the Rights Issue; and

3. subject to and conditional on the Share Consolidation, to authorise the
Directors to exercise all of the powers of the Company to allot up to
293,663,469 £1 Ordinary Shares (which will represent 98.4 per cent. of the
expected Enlarged Share Capital) being up to a maximum nominal amount of
£293,663,469.

Each Resolution will be proposed as an ordinary resolution requiring a simple
majority of votes in favour.

Effect of the Resolutions not being passed

If the Resolutions are not passed at the Extraordinary General Meeting, the
Rights Issue will not proceed. In such circumstances, the Directors will take
immediate action to seek to reopen discussions with the Corporate Facility Banks
with a view to securing an extension or renewal of the Corporate Facility on
commercially acceptable terms whilst simultaneously seeking to raise alternative
sources of funding to enable Paragon and PFPLC to be in a position to repay the
Corporate Facility on its repayment date in the event that any discussions with
the Corporate Facility Banks are unsuccessful.

Given that recent negotiations with the Corporate Facility Banks have been
unsuccessful, the Directors can offer no assurance as to whether the Corporate
Facility Banks would agree to reopen any discussions, whether they would agree
to any extension or renewal of the Corporate Facility or as to the terms on
which any such extension or renewal may be granted. Neither can the Directors
offer any assurance as to whether any alternative financing can be put in place
to enable Paragon and PFPLC to be in a position to repay the Corporate Facility
on its due date.

If the Directors were to be unsuccessful in securing any such extension or
renewal from the Corporate Facility Banks or in securing sufficient alternative
sources of funding, Paragon and PFPLC will be unable to repay the Corporate
Facility on its current repayment date.

Following a failure to repay the Corporate Facility on the repayment date the
security trustee in respect of the Corporate Facility Security and/or the
Corporate Facility Banks would have a number of options available to it or them,
to be exercised by it or them in their sole discretion as to timing and/or
manner including:

• to take proceedings against the Company and/or PFPLC for the recovery of all
sums due under the Corporate Facility; and/or

• to enforce the Corporate Facility Security.

Any of these options would become immediately available following 27 February
2008, the due date for the Corporate Facility. However, the Directors believe
that the most likely course of events would be for the security trustee to
enforce the Corporate Facility Security and to seek to appoint an administrative
receiver. The Directors can offer no assurance as to how soon after 27 February
2008 any such steps would be taken by the security trustee. Any realisation of
the value of the assets constituting the Corporate Facility Security (which, as
stated above, comprises all of the assets of the Group which are not otherwise
secured in respect of the Warehouse Facility or the asset backed securities
issued by the Group) would be applied in the first instance to repay the
Corporate Facility and any other debts of the Company and funds would only
become available to the Group in circumstances where a surplus was realised
following repayment in full of the Corporate Facility and such other debt.

The Board considers that any of the actions described above would be extremely
harmful to Shareholders' interests and there can be no certainty that in such
circumstances there would be any value attributable to the Company's Ordinary
Shares nor of when any such value might be realised.

Recommendation

The Board, which has received financial advice from UBS, believes that the
Resolutions are in the best interests of the Company and its Shareholders as a
whole. In providing advice to the Board, UBS has taken into account the
commercial assessment of the Directors. Accordingly, the Board unanimously
recommends that Shareholders vote in favour of each of the Resolutions to be
proposed at the Extraordinary General Meeting, as those Directors who are
Shareholders intend to do in respect of their own beneficial holdings of
Existing Ordinary Shares of, in aggregate, 711,310 Ordinary Shares, representing
approximately 0.62 per cent. of the issued share capital of the Company as at 10
January 2008. Those Directors who are Shareholders intend to subscribe under the
Rights Issue for such number of New Ordinary Shares as represent in aggregate at
least 73 per cent. of the rights attributable to their aggregate shareholdings
in the Company.

For further information, please contact:

The Paragon Group of Companies PLC
Nigel Terrington, Chief Executive
Nick Keen, Finance Director
Tel: [phone]

UBS
Adrian Haxby
Neil Patel
Tel: [phone]

Fishburn Hedges
Morgan Bone
Tel: [phone]
Mobile: [phone]

                                   Appendix I

Expected Timetable of Principal Events in Respect of the Share Consolidation and
                                  Rights Issue

                                                             2008

Announcement of the Rights Issue and                         11 January
publication of the Prospectus

Rights Issue Record Date                  Close of business  25 January
                                          on

Latest time and date for receipt of Forms 10.00 a.m. on      26 January
of Proxy

Extraordinary General Meeting             10.00 a.m.         28 January

Share Consolidation Record Date           Close of business  28 January
                                          on

Dispatch of Provisional Allotment Letters                    28 January
(to Qualifying non-CREST Shareholders
only)

Admission                                 8.00 a.m. on       29 January

Dealings in £1 Ordinary Shares, Nil Paid  8.00 a.m. on       29 January
Rights and Fully Paid Rights commence on
the London Stock Exchange and £1 Ordinary
Shares marked 'ex'

Nil Paid Rights credited to stock         as soon as         29 January
accounts in CREST (Qualifying CREST       practicable after
Shareholders only)                        8.00 a.m. on

Nil Paid Rights and Fully Paid Rights     as soon as         29 January
enabled in CREST                          practicable after
                                          8.00 a.m. on
Date of dispatch of definitive share      by                 5 February
certificates for £1 Ordinary Shared held
in certificated form

Recommended latest time for requesting    4.30 p.m. on       14 February
withdrawal of Nil Paid Rights or Fully
Paid Rights from CREST (i.e. if your Nil
Paid Rights or Fully Paid Rights are in
CREST and you wish to convert them into
certificated form)

Recommended latest time and date for      3.00 p.m. on       15 February
depositing renounced Provisional
Allotment Letters, nil paid or fully
paid, into CREST or for dematerialising
Nil Paid Rights or Fully Paid Rights into
a CREST stock account

Latest time and date for splitting        3.00 p.m. on       18 February
Provisional Allotment Letters, nil paid
or fully paid

Latest time and date for acceptance and   11.00 a.m. on      20 February
payment in full and registration of
renounced Provisional Allotment Letters

Dealings in New Ordinary Shares, fully    8.00 a.m. on       21 February
paid, commence on the London Stock
Exchange and New Ordinary Shares credited
to CREST stock accounts (uncertificated
holders only)

Date of dispatch of definitive share      by                 26 February
certificates for New Ordinary Shares in
certificated form

(i) Each of the times and dated set out in the above timetable is subject to
change by the Company, in which event details of the new times and dated will be
notified to the UKLA and, where appropriate, to Shareholders.

(ii) References to times in this announcement are to London, UK time.

(iii) If you have any queries on the procedure for acceptance and payment or on
the procedure for splitting Provisional Allotment Letters you should contact the
Receiving Agent, Computershare Investor Services PLC, Corporate Actions
Projects, Bristol BS99 6AH on 0870 707 1244 if calling from the UK or on +44 870
707 1244 if calling from outside the UK between 9.00 a.m. and 5.00 p.m. Monday
to Friday. For legal reasons the Shareholder Helpline will not be able to
provide advice on the merits of the Rights Issue or to provide financial, tax or
investment advice.

                                  Appendix II

                                  Definitions
'£1 Ordinary Shares'     the Ordinary Shares following the Share
                         Consolidation having taken effect
'ABS'                    asset backed securities
'Act'                    the Companies Act 1985, as amended
'Admission'              the admission of the New Ordinary Shares (nil
                         paid) to the Official List and to trading on the
                         market for listed securities of the London Stock
                         Exchange becoming effective, and references to
                         'Admission becoming effective' means its
                         becoming effective in accordance with LR 3.2.7G
                         of the Listing Rules and paragraph 2.1 of the
                         Admission and Disclosure Standards published by
                         the London Stock Exchange
'Articles'               the articles of association of the Company in
                         force as at the date of this announcement
'Australia'              the Commonwealth of Australia, its territories
                         and possessions
'the Board'              the board of directors of the Company as at the
                         date of this announcement
'BTL'                    buy-to-let
'Business Day'           any date (other than Saturday or Sunday or a
                         bank holiday) on which banks are generally open
                         in London for normal banking business
'Canada'                 Canada, its provinces and territories and all
                         the areas under its jurisdiction and political
                         subsidiaries thereof
'certificated' or        not in uncertificated form
'certificated form'
'Closing Price'          the closing, middle market quotation of an
                         Existing Ordinary Share, as published in the
                         Daily Official List
'Corporate Facility'     the secured revolving credit facility of the
                         Company of up to £280 million
'Corporate Facility      the syndicate of banks providing the Corporate
Banks'                   Facility
'Corporate Facility      the security granted to the Corporate Facility
Security'                Banks in respect of the payment obligations of
                         the Group under the Corporate Facility
'CREST'                  the relevant systems (as defined in the CREST
                         Regulations) for paperless settlement of share
                         transfers and the holding of shares in
                         uncertificated form in respect of which
                         Euroclear is the operator (as defined in the
                         CREST Regulations)
'CREST Regulations'      the Uncertificated Securities Regulations 2001
                         (S.I.2001, No. 3755), as amended
'Daily Official List'    the daily official list of the London Stock
                         Exchange
'Dealing Day'            any day on which the London Stock Exchange is
                         open for business in the trading of securities
                         admitted to the Official List
'the Directors'          the directors of the Company at the date of this
                         announcement and 'Director' means any one of
                         them
'Disclosure and          the disclosure and transparency rules made under
Transparency Rules'      Part VI of FSMA (as set out in the FSA Handbook)
                         as amended
'Enlarged Share Capital' the issued share capital of the Company
                         following completion of the Share Consolidation
                         and the Rights Issue
'Excluded Territories'   Canada, Japan and Australia and any other
                         jurisdiction where the extension or availability
                         of the Rights Issue (and any other transaction
                         contemplated thereby) would breach any
                         applicable law
'Euroclear'              Euroclear UK & Ireland Limited, the operator of
                         CREST
'Existing Ordinary       the Ordinary Shares of 10 pence each in the
Shares'                  capital of the Company prior to the Share
                         Consolidation becoming effective
'Extraordinary General   the extraordinary general meeting of the Company
Meeting' or 'EGM'        convened for 10.00 a.m. on 28 January 2008
'Forms of Proxy'         the forms of proxy accompanying the Prospectus
                         for use in connection with the Extraordinary
                         General Meeting
'FSA'                    the Financial Services Authority
'FSMA'                   the Financial Services and Markets Act 2000, as
                         amended
'Fully Paid Rights'      rights to acquire New Ordinary Shares, fully
                         paid
'Group'                  the Company and its subsidiaries from time to
                         time
'Japan'                  Japan, its cities, prefectures, territories and
                         possessions
'LIBOR'                  London InterBank Offered Rate
'Listing Rules'          the Listing Rules made by the UKLA for the
                         purposes of Part VI of FSMA
'London Stock Exchange'  London Stock Exchange plc or its successor
'LTV'                    loan to value
'New Ordinary Shares'    the new £1 Ordinary Shares to be issued by the
                         Company in accordance with the Rights Issue, and
                         'New Ordinary Share' means one of them
'Nil Paid Rights'        New Ordinary Shares in nil paid form
                         provisionally allotted to Qualifying
                         Shareholders pursuant to the Rights Issue
'Official List'          the list maintained by the UKLA pursuant to Part
                         VI of FSMA
'Ordinary Shares'        ordinary shares of 10 pence each in the capital
                         of the Company and, following the Share
                         Consolidation, ordinary shares of £1 each in the
                         capital of the Company
'Overseas Shareholders'  holders of Ordinary Shares with registered
                         addresses outside the UK or who are citizens of,
                         incorporated in, registered in or otherwise
                         resident in, countries outside the UK
'Paragon' or 'Company'   The Paragon Group of Companies PLC
'PFPLC'                  Paragon Finance PLC
'Prospectus'             a combined circular to Shareholders containing
                         both the notice of the Extraordinary General
                         Meeting and the prospectus relating to the
                         Rights Issue and Share Consolidation
'Prospectus Rules'       the rules made by the UKLA for the purposes of
                         Part VI of FSMA
'Provisional Allotment   The renounceable provisional allotment letter to
Letter'                  be issued to Qualifying non-CREST Shareholders
                         by the Company in respect of the Nil Paid Rights
                         pursuant to the Rights Issue
'Qualifying CREST        Qualifying Shareholders whose Ordinary Shares on
Shareholders'            the register of members of the Company at the
                         close of business on the Rights Issue Record
                         Date are in uncertificated form
'Qualifying non-CREST    Qualifying Shareholders who Ordinary Shares on
Shareholders'            the register of members of the Company at the
                         close of business on the Rights Issue Record
                         Date are in certificated form
'Qualifying              holders of Ordinary Shares on the register of
Shareholders'            members of the Company at the close of business
                         on the Rights Issue Record Date
'Receiving Agent'        Computershare Investor Services PLC, Corporate
                         Actions Projects, Bristol, BS99 6AH
'Resolutions'            the resolutions set out in the notice of the
                         Extraordinary General Meeting
'Rights Issue'           the proposed issue by way of rights of New
                         Ordinary Shares to Qualifying Shareholders
'Rights Issue Price'     £1.00 per New Ordinary Share
'Rights Issue Record     the close of business on 25 January 2008
Date'
'SEC'                    The US Securities and Exchange Commission
'Securities Act'         the United States Securities Act of 1933, as
                         amended
'Share Consolidation'    the proposed consolidation of the Company's
                         existing share capital
'Share Consolidation     28 January 2008
Record Date'
'Shareholder'            a holder of Ordinary Shares
'SPV'                    special purpose vehicle
'Standby Letter'         the standby agreement for equity financing
                         entered into between the Company and UBS on 19
                         November 2007
'UBS' or 'UBS Investment UBS Limited of 1 Finsbury Avenue, London, EC2M
Bank'                    2PP
'UKLA' or UK Listing     the FSA acting in its capacity as the competent
Authority'               authority for the purposes of Part VI of FSMA
                         and in exercise of its function in respect of
                         the admission to the Official List otherwise
                         than in accordance with Part VI of FSMA
'uncertificated' or      a share or other security recorded on the
'uncertificated form'    relevant register of the share or security
                         concerned as being held in uncertificated form
                         in CREST and title to which by virtue of the
                         CREST Regulations, may be transferred by means
                         of CREST
'Underwriting Agreement' the agreement dated 11 January 2008 between the
                         Company and UBS
'United Kingdom' or 'UK' the United Kingdom of Great Britain and Northern
                         Ireland, its territories and dependencies
'United States' or 'US'  the United States of America, its territories
                         and possessions, any state of the United States
                         of America and the District of Columbia
'Warehouse Facility'     the facility of the Company with a borrowing
                         limit of £2.325 billion
'Warehouse Facility      the syndicate of banks providing the Warehouse
Banks'                   Facility
'Warehouse Facility      the security granted against the Warehouse
Security'                Facility



CE080090053



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