British Energy will throw itself on the mercy of Chancellor Gordon Brown this week by saying it plans to negotiate a debt-for-equity swap to sort out its financial problems but will have no deal to put to its creditors.
The Government has lent the troubled nuclear generator £650m to stop it going into administration, but the loan is due to be repaid on Friday.
Senior sources have indicated that Mr Brown will not extend the help to British Energy unless the group is able to put forward plans to sort out its financial mess.
British Energy's announcement will try his patience. He is under pressure from Patricia Hewitt, the Trade and Industry Secretary, not to force British Energy into administration but has expressed concerns about sup- porting the troubled business.
The Government is worried that if the company went into administration, it would pose as big a problem as Railtrack. After it collapsed last year, the City successfully lobbied the Government for compensation for shareholders.
Even if British Energy is able to propose a debt-for-equity swap, this will not end its worries. Holders of £125m of bonds due to be repaid in March are thought ready to reject any deal in the hope of being paid out when they mature. A number of US arbitrage funds are understood to have bought the bonds and are prepared for a fight.
However, a leading credit analyst warned that this could be a risky strategy. "The £13bn nuclear liabilities are the problem," he said. "If British Energy goes into administration, the administrator could recognise these as current liabilities and none of the creditors will get a penny."
British Energy has yet to agree a deal with BNFL, the state-owned fuels group, on cutting reprocessing charges. BNFL has offered a deal to cut charges from £300m a year to £180m, but British Energy does not think that is enough.
British Energy also wants to sell its North American assets. The US business Amergen is being auctioned while British Energy is in talks with Cameco, minority shareholder in its Canadian business Bruce Power, about selling the business. But financial guarantee problems for Bruce and attempts to put price limits on Canadian electricity are likely to hit this business's value.
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