Drax's A2-A3 equity-linked tranches have dropped 30 points to 225 after British Energy relisted its shares on the London Stock Exchange two weeks ago, according to European-based traders. British Energy is the closest comparable to Drax, a trader explained. Before relisting, an implied valuation in the bond market valued British Energy's new equity around 330p. However, the shares started trading at 275p. In a matter of days, the price had fallen to 240-250. Additionally, UBS issued a research that placed an equity valuation of 225p.
Prices for electricity in the U.K. have also come down. "All U.K power assets have lost value," the trader added, but this has especially hurt Drax's A2 and A3 tranches, which trade more like an equity instrument than a debt instrument, he said.
A Drax spokeswoman disagreed that British Energy presents a good comparable to Drax, noting British Energy is predominantly nuclear while Drax is a coal-powered station. Also, in terms of production, Drax produces only 7% of the U.K. electricity while British Energy supplies around 20%. She could not provide comment on the reasons for the drop.
One source indicated that even though electricity prices have fallen since the peak in October, prices are still higher than in August 2004. The source speculated that the news that British Energy's restructuring has been successfully implemented, as a result of which the U.K. Government will continue to be financially responsible for the company's historic spent nuclear liabilities, estimated at between £150 million and £200 million each year for the next ten years, is likely to have had an effect in terms of market sentiment. "It may be that one company's good fortune is viewed as not good for that company's competitors," the source concluded.