AES pulls out of Drax restructuring after creditors refuse to rule out International Power bid

By Peter Heap

New York, Aug. 6 - AES Corp. said it is pulling out of the restructuring process for AES Drax Holdings Ltd.

The move comes after AES Drax's senior creditors refused to immediately reject a bid for involvement from International Power plc as AES had demanded.

"At this time, we feel it appropriate that the creditors of Drax exhibit a commitment to AES as part of the solution," said Paul Hanrahan, AES' president and chief executive officer in a news release.

"We have communicated to the creditors that we are no longer willing to participate without this commitment, and that we are not willing to increase our offer. The creditors have not given us that commitment, and therefore we have withdrawn our offer and support for the business.

"AES will maintain its financial and investment discipline in all its business dealings and this is an example of that discipline."

Now AES Drax said its independent directors and creditors will examine other proposals including the one from International Power.

"Drax, with the support of the senior creditors committees is in continuing discussions with a number of parties interested in the restructuring of Drax, who might replace AES Corp. in the overall scheme," said Gordon Horsfield, an AES Drax director, in a news release.

On July 28, AES asked AES Drax creditors to back its plan for restructuring the Richmond, U.K. power company's debt - and to reject a bid by International Power to get involved.

AES is asked the banks and bondholders to confirm in writing their commitment to the original restructuring plan by Aug. 5. If not, AES said it will pull out.

AES Drax received a letter from International Power on July 24, in which it offered to buy some of the debt to be issued in AES Drax's restructuring process.

International Power described its offer as a "substantial" improvement on the cash-out option included in the current restructuring plan.

International Power is offering to provide up to £80 million as opposed to the £60 million proposed by AES Drax to fund the cash-out option. It is also proposing that the discount price for a senior finance party's participation in the A-2 debt will be 55% of its principal amount as opposed to the 47% proposed by AES.

AES said International Power had shown interest at various points previously but had not followed through.

In response to AES' demand, the senior creditors committees - which represent AES Drax's bank lenders and holders of its senior bonds - said they would not be able to satisfy the conditions, AES Drax said in a filing with the Securities and Exchange Commission Wednesday.

Both bank lenders and bondholders indicated they will not seek to terminate the current standstill agreement which runs through Aug. 14 and that they "continue to be fully supportive of efforts to proceed with the proposed restructuring and allowing AES Drax Holdings time to evaluate alternative proposals," the company said in the SEC filing.

As a result, AES Drax said it will seek to extend the current standstill to Sept. 30.

AES Drax said AES' action will have no immediate impact on operation of the power station "which is largely self-sufficient." Only four out of 480 people employed in the business are AES staff. Furthermore, AES has agreed to work with AES Drax to ensure an orderly transition.

A conference call for bondholders will be held on Aug. 8 at 12.00 p.m. ET (+44 1452 550 000, PIN 086155#)

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