Mizuho , one of the three largest bank lenders to Drax Power , has liquidated its position in the U.K. power plant's £840 million ($1.47 billion) loan, according to sister publication Power, Finance & Risk. Market watchers said Mizuho's London commercial banking unit Mizuho Corporate Bank recently offloaded its £43 million position in Drax, Europe's largest power station, to the distressed trading desks at Citibank (£33 million) and Merrill Lynch (£10 million) at 90% of face value. At least one of the bulge bracket firms immediately flipped the position to Deutsche Bank for 90 1Ž 2, they added. Officials at Mizuho declined to comment and calls to Merrill, Citi and Deutsche Bank 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 £46 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. The £842 million loan will be converted into four tranches of bonds when all of Drax's outstanding senior loans and senior bonds are restructured on Dec. 22.
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 70's, in response to concerns that the U.K.'s reserve generation margin is declining (LMW, 12/2).
Another motivation for Mizuho is that despite selling the Drax paper at a discount to par, Mizuho's trading desk was able to book a profit on the sale because it had already significantly marked down the value of Drax on its balance sheet.