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Drax Power Debt Surges On Run-Up To Listing

Drax Power's bank debt soared more than 27 points to 427 on the eve of its listing on the London Stock Exchange.

Drax Power's bank debt soared more than 27 points to 427 on the eve of its listing on the London Stock Exchange. The U.K. power company's A2/A3 debt converted into equity last Thursday last week. Drax shares closed at £4.90 ($8.64) a share, valuing the company at a little over £2 billion. A trader said investors scrambled to buy into the debt in the run-up to the listing. "Those power companies that have an equity component do well. If there is only debt, investors' returns are capped at par. In the case of Drax, investors were always going to get equity," he said.

Eight months ago, Drax's debt was trading at around 230. Its value has been bolstered by surging U.K. electricity prices, which have more than doubled in the past three months. Drax's fortunes have taken an abrupt change compared with three years ago, when it collapsed after power prices fell and TXU Europe, its largest customer, went bankrupt. Since its restructuring, the value of its debt has soared on the back of increasing power prices.

Recently, Drax's debt was bumped up further by bids submitted by several investment groups seeking to buy the company. Since September, several investment firms, including Constellation Energy, Apollo Management and Texas Pacific Group Europe, showed interest in buying the company. Its board, however, rejected the bids, claiming they undervalued the company.

Standard & Poor's assigned a BBB- corporate credit rating to the Drax Power group. It assigned a BBB rating to Drax's new £500 million of bank debt, as well as its £100 million revolver and £200 million letter of credit facility. Magdelena Richardson, an associate at Standard & Poor's, said the agency is satisfied that Drax would be able to repay its debt should it collapse because of a drop in electricity prices. "Even if its EBITDA fell from £440 million to £200 million, it could still service its debt," said Richardson.


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