Nov. 20 (Bloomberg) -- Northern Rock Plc, the U.K. bank bailed out by the Bank of England, slumped for a second day in London trading after saying that bids are ``materially below'' its market value.

The stock fell 6.9 percent to 97 pence, valuing the Newcastle, England-based company at 409 million pounds ($845 million). New York-based buyout firm J.C. Flowers & Co. is proposing to buy Northern Rock for a nominal sum in return for recapitalizing the company and paying off some of its debt, a person familiar with the plan said today.

U.K. Chancellor of the Exchequer Alistair Darling and the central bank are under fire for awarding a government guarantee on deposits and granting emergency loans that have reached 25 billion pounds. A jump in credit costs in August and September forced Northern Rock to seek a rescue on Sept. 14, sparking the first run on a U.K. bank in more than a century.

``I can hardly believe that someone would come in and offer zero to the shareholders,'' said Christian Stoian, who helps manage 2 billion euros ($3 billion) at Swedish pension fund Andra Ap-Fonden, including a 1.5 percent stake in Northern Rock. ``It is not a bankrupt company. They are making money.''

The cost of borrowing pounds for three months rose to a two-month high yesterday amid concern that losses linked to U.S. subprime home loans will grow. Bradford & Bingley Plc, the U.K.'s biggest lender to landlords, said today it sold 4.2 billion pounds of home and commercial property loans to improve cash flow as borrowing costs increase.

Paragon Falls

Paragon Group Cos., the U.K. mortgage lender that gets all its funding in capital markets, sank as much as 50 percent in London trading today after saying it may need to raise 280 million pounds in a share sale. The Solihull, England-based company blamed ``unattractive'' credit costs and said it may make half as many loans in the first half of 2008 as a year earlier.

Northern Rock said yesterday that bids for the company are ``materially below'' the 132.6 pence the shares closed at on Nov. 16. The stock, which has fallen from a peak of 1,251 pence on Feb. 9, would be worth 400 pence in ``normal market conditions,'' according to investor Stoian.

Credit-default swaps on Northern Rock jumped 34 basis points to 234 basis points, according to CMA Datavision. The contracts rise as perceptions of credit quality worsen. A basis point on a credit-default swap contract protecting 10 million euros of debt for five years is equivalent to 1,000 euros a year.

Flowers Proposal

J.C. Flowers, run by former Goldman Sachs Group Inc. banker Christopher Flowers, is proposing a 1 billion-pound equity recapitalization, the person said, declining to be identified. The firm would keep the Northern Rock name and work with a group of banks to pay off 15 billion pounds of the estimated 25 billion pounds in loans granted by the Bank of England, the person said. Central bank funds would be needed through 2010.

Billionaire Richard Branson's Virgin Group Ltd. and Olivant Advisers Ltd. disclosed competing proposals for Northern Rock on Nov. 16, the same day it said Chief Executive Officer Adam Applegarth and four non-executive directors would quit.

Cerberus Capital Management LP, a U.S. private-equity firm, also submitted an acquisition plan on Nov. 16, according to two people with knowledge of the proposal. Spokespeople for Cerberus and Northern Rock declined to comment.

``We don't really know the value of the bids'' for Northern Rock, said Simon Maughan, an analyst at MF Global Securities in London who has a ``neutral'' rating on the stock.

Railtrack Comparison

``People are making comparisons with Railtrack, where shareholders got nothing,'' Maughan said. U.K. rail operator Railtrack Plc operated around 2,500 stations in 2001 when the government asked the High Court to put the company into administration. About 49,000 shareholders lost a three-year legal battle to gain compensation in 2005 after a company partly funded by the government bought Railtrack's shares.

The London Stock Exchange extended the price-settlement period for Northern Rock shares at the end of trading today.

To contact the reporter on this story: Jon Menon in London jmenon1@bloomberg.net

Last Updated: November 20, 2007 13:05 EST