Drax in £100m cash call to prop up ratings

Published on Tuesday 23 June 2009 21:36

THE owner of Europe's largest coal-fired power station yesterday asked investors for £100 million in order to preserve its investment grade debt rating.

Drax, which produces 7 per cent of the UK's electricity at its plant near Selby in North Yorkshire, described the share placing as sensible and prudent after ratings agency Standard & Poor's downgraded its view of the company's debt.

The company's senior debt was marked down from BBB to BBB-, one notch above junk status, after S&P forecast a material weakening in Drax's earnings this year due to the recession and its negative impact on wholesale power prices.

While disappointed with last month's assessment from S&P, Drax said it was confident yesterday's debt reduction exercise would address the concerns.

Drax noted that commodity markets were forecasting a sharp recovery in prices from next year and said it had already sold about 80 per cent of its output for 2010 at higher average margins than for 2009.

The wholesale price of electricity has dropped sharply since last summer, squeezing the company's "dark green spread" – the margin that Drax earns over the costs of coal and carbon dioxide emissions permits.

While spreads are currently at near-historic lows, chief executive Dorothy Thompson said she was confident in long-term prospects.