U.K.-based Paragon Banking Group PLC agreed to acquire the entire share capital of residential development finance provider Titlestone Property Finance Ltd. for a consideration of about £48 million.
Paragon will also acquire a portfolio of development finance loans for about £226 million from special purpose vehicles ultimately controlled by U.S.-based Oaktree Capital Management LP, which also controls Titlestone. The company will also service a second portfolio, which Oaktree will sell to CarVal Investors and which represents 49% of the total gross loan balance at completion.
The purchase consideration represents a premium of £47.8 million to Titlestone's net assets and is subject to customary closing adjustments. The deal is expected to improve Paragon's after-tax profits by a single-digit percentage in the first full year but will not affect its stated dividend policy.
Titlestone's team, which largely focuses on the origination of new loans and the in-life management of the portfolios, will be combined with Paragon's existing residential development lending activities, which will be spearheaded by Robert Orr, managing director of Titlestone.
Paragon said the deal would have cut its core equity Tier 1 ratio to 13.8% from 15.5% if the deal took place at the March 31 balance sheet date. Its total capital ratio would have been 16.4%. It added that the transaction is expected to have a favorable effect on its cost-to-income ratio.
Following the deal, the remainder of Paragon's 2018 share buyback program will be suspended and its future capital management plans will be announced with its Nov. 21 preliminary results for the year to Sept. 30.