Drax seeks pounds 100m

Huddersfield Daily Examiner (Huddersfield, England), June 24, 2009

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

Drax, which produces 7% of the UK's electricity at its Selby plant 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.

S& P forecast a material weakening in Drax's earnings this year due to the recession and its negative impact on wholesale power prices.

Drax said it was confident the 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 has already sold about 80% 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 margin that Drax earns over the costs of coal and carbon dioxide emissions permits.

Chief executive Dorothy Thompson said: "This action is a prudent and measured response to specific factors existing in our market at this time, which is at the low point of the cycle.

"We are confident the placing will improve the resilience of our capital structure and underpin the investment grade debt rating, which is important in maximising the value from Drax."