AES writes off £1.8bn as it hands over Drax power station to its creditors

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The Independent Online

AES, the heavily indebted US energy company, will on Wednesday abandon Drax, the UK's largest coal-fired power station, leaving it in the hands of its creditors.

AES, the heavily indebted US energy company, will on Wednesday abandon Drax, the UK's largest coal-fired power station, leaving it in the hands of its creditors.

The decision came late on Friday at an AES board meeting and will hand one of Yorkshire's best-known landmarks to 53 banks and bondholders.

AES, which bought the giant power station in 1999 for £1.87bn, will walk away with nothing. The company was forced into negotiations with its creditors last year after the collapse of TXU Europe, one of Drax's largest customers.

The banks and bondholders, which were owed around £1.2bn, agreed not to force Drax into administration on condition that AES entered restructuring talks. This involved a £1bn debt-for-equity swap. But after nine months of negotiations - during which AES lost millions running Drax - the company believes it is unlikely ever to reach an agreement with its creditors.

A senior source close to the talks said: "There is no prospect of an agreement. The banks and the bondholders seem unable to make a decision."

Last week AES set its creditors a Tuesday deadline to agree to its deal, after International Power (IP) made an offer to buy some of Drax's debt. This would have scuppered AES's deal.

The source close to the talks indicated that even if Drax's creditors rejected IP's offer, AES would still pull out. "This isn't an attempt to force a deal. AES just can't continue with this," said the source.

AES's withdrawal gives IP a clear run at acquiring Drax. On 23 July it offered to buy a proportion of Drax's debt for £80m. If IP honours this offer then under Drax's complex financing arrangement this would give it a 36 per cent stake in Drax's equity. Creditors have until 22 August to consider the offer.

A spokeswoman for IP said: "We are interested in Drax because it is an important part of England and Wales's electricity market and is fully equipped to meet future environmental requirements." The spokeswoman refused to say what IP's long-term plans for Drax were. But it is understood that the company has already held discussions with other power companies and banks about the possibility of buying other parcels of Drax's debt if its bid is successful.

IP owns power stations in 12 countries, but just two in the United Kingdom.

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