Japan’s Mizuho , one of the three largest bank lenders to Drax Power , has liquidated its position in the U.K. power plant’s GBP840 million ($1.47 billion) loan.
Market watchers said London subsidiary Mizuho Corporate Bank last week offloaded its GBP43 million position in Drax to the distressed trading desks at Citibank (GBP33 million and Merrill Lynch (GBP10 million) at 90% of face value. At least one of the bulge bracket firms immediately flipped the position to Deutsche Bank for 90.5, they added. Officials at Mizuho declined to comment and calls to Merrill, Citi and DB were not returned.
The back-to back trades leave Deutsche Bank with the single largest position in Drax’s senior loan. Before the trade it had a GBP46 million position, making it the equal largest loan holder alongside Goldman Sachs , said bankers. Market watchers said Deutsche Bank, unlike Goldman, is not looking to acquire control of Drax but is simply making an investment play on its debt.
Mizuho tendered its Drax position in the belief that the paper’s rally has come far enough in recent weeks and is likely run out of steam once the plant’s debt is restructured shortly, said rival traders. In the past six weeks alone Drax’s debt–which already trades as a combined restructured four tranche package–has rallied 15 points from the low seventies, in response to concerns that the U.K.’s reserve generation margin is declining.