Drax Holdings releases details of £1.3 billion debt restructuring

By Carlise Newman

Chicago, Nov. 17 - Drax Holdings posted documentation to senior creditors regarding the proposed restructuring of £1.3 billion of debt and the related cash-out offer from International Power plc for part of that debt. Secured debt will be replaced with new secured debt.

The debt to be restructured is as follows: the £842.555 million bank loan due 2015 owed to senior banks, paying interest at Libor plus 300 basis points; the $302.4 million in 10.41% senior secured bonds due 2020; the £200 million 9.07% senior secured bonds due 2025; and hedge termination payments of up to £79.9 million.

Under the restructuring proposals, this debt will be restructured on a pound for pound basis into four new tranches of debt obligations of InPower 2, the newly incorporated holding company of InPower, serviced indirectly by Drax Holdings.

All senior secured debt will be treated equally under the plan. Accordingly, senior banks, senior bondholders and, if relevant, hedging banks will be entitled to participations in the new A-1 debt that AES Drax will issue; and a combination of A-2 debt, A-3 debt and B debt and/or cash under the cash-out option.

Creditors who choose the cash-out option will receive 71 pence on the £1 for A-2 debt, 1 penny on the £1 for A-3 debt and 55 pence on the £1 of B debt.

The £400 million of new A-1 debt will mature in 2015 and pay interest at Libor plus 250 basis points; the £460 million new A-2 debt will mature in 2015 and pay interest at Libor plus 400 basis points; the £124 million of new A-3 debt will mature in 2020 and pay interest at Libor plus 500 basis points; and the £338.4 million B debt will mature in 2025 and pay interest at Libor plus 200 basis points.

The new £100 million credit facility will mature in 2006 and pay interest at 2%.

International Power offer will provide up £100 million to fund the cash-out option.

International Power will leave the company and senior creditors to decide whether to use £30 million of cash currently held by the company or up to £50 million pounds in order to fund the A cash-out option.

If the company and the senior creditors elect to use the £30 million, the cash-out option will be funded through up to £30 million of project funds with a proportional contribution from International Power's £100 million and then using International Power's £100 million for any additional amounts required.

The amortization schedule on the debt is as follows: of the A-1 debt, £10 million will be due in 2007; £20 million in 2008; £55 million in 2009, 2010, and 2011; and £50 million in 2012 through 2015.

The A-2 debt will have no fixed payment schedule, but the outstanding balance will be due on June 30, 2015.

Interest on both will be semi-annual.

Unpaid interest on the A-3 debt will be deferred. There will be a six month look-forward test for A-3 debt interest on a one-time service cover ratio and, to the extent that such test is not passed, an amount equal to the shortfall will be placed in a reserve account.

The B debt interest will be paid in accordance with the cash flow waterfall, where it ranks behind the A-1 debt payments, interest on the A-2 debt and A-3 debt and required transfers to the other debt service reserve accounts.

The secured creditors will become indirect owners of the whole of the equity of the company which owns the Drax power station in proportion to their holdings of A-3 debt.

For creditors that choose the cash-out option, International Power will become entitled to their share of the equity to the extent that the A cash-out option is funded by International Power funds.

Under the restructuring, neither AES Corp. nor the holders of high yield bonds issued by AES Drax Energy Ltd. will receive anything.

The restructured capital base is designed to be flexible enough to reflect the operating profile and requirements of the business going forward, and also ensure that interests are aligned between the different segments of creditors and shareholders, Drax said.

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