Drax raises £100m to restore credit rating

23rd Jun 2009 07:23

Power station operator Drax is to raise £100m through a placing to restore its credit rating after a recent downgrade by Standard & Poor's.The group will place 25.5m new ordinary shares, approximately 7.5% of Drax's existing issued ordinary share capital, through an accelerated bookbuild today. Drax believes the placing represents a sensible, prudent and cost-effective means of improving the resilience of its capital structure.The proceeds will be applied to a part prepayment of the current £370m term debt. The reduced level of term debt will be refinanced under terms whereby it will be fully repaid by December 2012, leaving only a working capital facility and letter of credit facility outstanding at that time.It added it remains disappointed with S&P's assessment of the increased business risk facing Drax post-2012, but is confident that the actions being proposed today help address their concerns.The dividend policy is unchanged after the placing. For 2009, all excess cash from operations after meeting business requirements will be distributed via an appropriate interim and final year dividend. From 2010 Drax will target a pay-out of 50% of underlying earnings, adjusted for non-cash accounting items. In a trading update accompanying the placing, Drax said that the UK market continues to experience low near-term dark green spreads, although its exposure is mitigated by its strong forward contracted position. "If commodity prices remain at current levels, we anticipate that full year EBITDA for 2009 will be in line with market consensus," it said."For 2010 and beyond, commodity markets currently forecast a sharp recovery in prices and dark green spreads (a term for income from each unit of electricity produced). We have taken the opportunity to accelerate hedging into 2010, locking into these margins in what remains a volatile and unpredictable trading environment. We have already sold approximately 80% of our output for 2010 at higher average margins than for 2009," it added.