Lenders To Control Largest UK Power Station

Creditors of Britain's largest power station, Drax, plan to take over full ownership of the financially distressed business in a restructuring agreed with its U.S. owner AES Drax.

In a statement filed with the U.S. Securities and Exchange Commission, AES Drax and a committee of creditors owed more than 1.3 billion pounds ($2.15 billion) also proposed a one month extension of a standstill agreement on interest payments that expired on Monday.

Under the current debt structure, around 840 million pounds of bank debt and a further 400 million pounds of sterling and dollar-denominated bonds have equal recourse to the company's assets.

The proposed new structure would transfer equity ownership of AES Drax to the banks and bondholders from its ultimate owner, U.S.-based AES Corp, and restructure the debt into tiers. There would be 400 million pounds worth of new senior debt, up to 460 million pounds-worth of "A-2" debt under that, and 338.4 million of "B" debt.

The "B" debt represents the value of a claim for breach of contract by TXU Europe, which formerly bought 60 percent of Drax's electricity at above market prices but folded last year, tipping heavily indebted AES Drax into problems of its own as it was forced to accept depressed free market prices for its power.

There will also be a 135.455 million pound bottom tranche of "C" debt representing the difference between the value of the rest of the original debt and the sum of the other tranches of new debt.

Industry sources say that this year with the standstill on interest payments in place, Drax, a 4,000 megawatt coal-fired power station near Leeds, in Yorkshire, has built up some 200 million pounds of cash, demonstrating that it can survive as a going concern.

"The banks and bondholders are confident now that the underlying asset is viable so they would rather see it stay in business than go into administration," said one source. "There is significant upside if and when the UK power market recovers."

Sources say the asset itself -- which can supply 10 percent of the UK's electricity needs -- is probably worth between 400 and 600 million pounds at present and is just about cashflow positive at current power prices of around 16 pounds per megawatt hour.