Drax's A2/A3 tranche ticked up to the 119 range from the 115 context where it was trading last week on improved energy prices. "They have much more cash than anticipated so they will be able to pay interest with cash," a trader noted. He cited the release of financial statements two weeks ago as the catalyst for the rise. Drax, the U.K.'s largest power plant, has total outstanding debt of £1.3 billion.
Last April, an embargo to prevent the sale of non-recourse Drax paper to investors other than CGE Power was relinquished. The sponsors of CGE are Abbey National, Bayerische Landesbank, HBOS, HVB, Lloyds TSB, Royal Bank of Scotland and WestLB. The embargo started when CGE, which had meant to acquire Drax in February, signed a pact with its sponsors preventing any of them from divesting their project debt exposure to key U.K. plants that CGE intended to buy (LMW, 5/17). CGE's bid to acquire Drax failed and Abbey National and HVB were reportedly seen selling off their exposure.
The improvement in Drax's debt levels is the result of the restructuring process and enhanced energy prices and not of the positive financial statements release, a Drax spokeswoman responded. "The banks and bondholders that decided to stay in the company during the restructuring, stayed because they saw signs of recovery in the market as a whole," she noted.