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Bradford & Bingley the UK’s biggest Buy to Let mortgage Lender has confirmed that its plan to raise £400m has been rescued by a group of UK investors.

Bradford & Bingley’s plans were put into chaos after US private equity firm Texas Pacific Group  walked out on a deal to pay £179m for a 23% stake in the UK Mortgage  lender.

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

As  shares fell for the UK Mortage Lender by as much as 14%, dropping below the rights issue price level.

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

Bradford & Bingley is offering share holders its new shares at a “knock down” price of 55 pence per share.

In recent trading they were down 4.5 pence, or 7.4%, at 56.5p. But in early exchanges, they dropped to as a low as 52p.

Bradford & Bingley is  one of the UK’s biggest buy to let mortgage lenders, is looking to raise money because the group has been hit by the credit crunch crisis and the sharp slowdown in the property market.

Texas Pacific Group walked away from the  deal to buy the a stake of 23%  in Bradford & Bingley 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 massive black 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,” our correspondent said.

To fill the funding gap, B&B decided to increase its rights issue from £258m to £400m, and got the backing of Legal & General, Standard Life, M&G and Insight Investment.

The group of companies helping rescue B&B are the firm’s largest shareholders. They were also the backers of a plan by Clive Cowdery, head of investment group Resolution, to acquire a controlling stake in B&B.

However, B&B rejected Mr Cowdery’s plan last week.

‘Substantial deterioration’

B&B said the rights issue would be underwritten by the investment banks, Citigroup and UBS.

The firm’s executive chairman Rod Kent said: “B&B continues to be well funded and the capital raising will reinforce our position as one of the better capitalised banks and one of the leading mortgage and savings banks in the UK.”

The plans should be a  comfort to B&B’s depositors and creditors, the BBC’s business editor said.

But he pointed out that Moody’s announcement of its downgrade to B&B’s credit rating made for pretty dismal reading.

The statement talks of a “substantial deterioration in the bank’s asset quality” and warns that arrears will worsen on its buy-to-let mortgages in coming months.