Chapter 12

Drax, United Kingdom

Project summary^1

Drax, a coal-fired power station located in North Yorkshire in England, is one of the largest
coal-fired plants in western Europe and generates about 8 per cent of the United Kingdom’s
electricity. Its owner, National Power, was required to divest some of its generation capacity
when it purchased the distribution/supply business of Midlands Electricity, one of the country’s
14 Regional Electricity Companies. AES Corporation, based in the United States, purchased the

Type of project

3,960 MW coal-fired power plant.

Country

United Kingdom.

Distinctive features

• One of the largest and most complex power project financings ever done.


• Largest power project financing to date in London market.


• First high-yield project bonds issued in Europe.


• High leverage justified partly by hedging contract that covered 60 per cent of the
  plant’s output.
  •Difficulty of adjusting to terminated hedging contract and increased proportion of
  merchant sales because of declining wholesale electricity prices and high leverage.


• Standstill agreement with creditors to allow debt restructuring.

Description of financing

The original bank financing in 1999 comprised a £1.3 billion, 15-year, amortising term

loan repayable in semiannual instalments from June 2000 to June 2015. Pricing, based

on a grid tied to the borrower’s credit rating, ranges from 150 basis points (bps) over

the London interbank offered rate (Libor) to 300 bps over Libor.

The subsequent bond financing in 2000 comprised £400 million in equivalent

senior secured notes due 2020 and 2025, and £250 million in deeply subordinated, 10-

year-bullet, high-yield bonds.