The energy generator Drax raised £108m yesterday in a shares placing to pay down its debt and help keep its credit rating above junk status.
The 15.5 million new shares, representing about 7.5 per cent of the issued stock, sold in a matter of hours at a 425p – a 5.3 per cent discount from the previous day's closing price. The shares closed down 2.78 per cent at 436.5p.
The placing was made after the ratings agency Standard & Poor's lowered Drax's rating to BBB-minus last month and reduced its outlook from stable to negative in the light of falling power prices and the unpredictable effect of the next phase of the European emissions trading scheme from 2013.
The money raised will be used to pay down the group's £370m term debt, the remains of which will be refinanced by the end of the year. The company is also instituting a plan to pay off the rest of its debt by the end of 2012, to address S&P's longer term concerns about the unknown impact of the trading scheme, which will require all emissions permits to be bought.
Under the previous debt plan, Drax was to pay off a £65m tranche this year, and the same again in 2010, with the remaining £240m to be refinanced at the end of next year.
Dorothy Thompson, the Drax chief executive, said: "This is a prudent and measured response to specific factors existing in our market at this time, which is at the low point of the cycle."
The S&P rating is vital to Drax because its contracts for both selling power and buying coal supplies are contingent on an investment grade rating for its debt. If the rating falls below investment grade it triggers a requirement for Drax to post collateral against its trading positions in the market, which would put considerable strain on its balance sheet.
With only one notch left below BBB-minus before hitting junk status, and a negative outlook over the longer term, the company was left almost no room to manoeuvre – hence yesterday's equity raising.