Canadian investment bank BMO Nesbitt Burns has unwound a £42 million ($76 million) non-recourse loan position in Drax, a 4 GW power plant in northeast England that its creditors foreclosed on last fall, according to LMW sister publication Power, Finance & Risk. The stake was reportedly bought by the distressed loan trading desks at Goldman Sachs and Merrill Lynch. Calls to Goldman and Merrill were not returned. It remains unclear whether they subsequently flipped the positions to other investors.
A BMO banker said the Montreal-based bank decided to cash in its Drax position early last week to profit from a sharp rise in the plant's debt value. BMO sold its position at 94, said market watchers, adding the debt has soared 30% in the last three months.
BMO is one of several original creditors to AES Drax, including Mizuho and Fortis Bank, to have liquidated their positions recently. The reshuffle has left the plant's long-term destiny in the hands of a motley assortment of commercial lenders, investment banks and hedge funds. The make-up of the creditor committee now includes a slew of distressed debt investors, including Värde Partners, Cargill Financial Markets and affiliates of George Soros' Quantum Fund.
Market watchers also speculate that BMO is washing its hands of Drax to avoid being drawn into a potentially bitter dispute that's brewing over how best to divest the plant. Some lenders want to see Drax incorporated into a new bank-owned generation company, CGE Power, in return for debt in the new entity. Other creditors would like to see Drax sold to an existing generator for cash.