UPDATE 3-UK's Drax raises $178 mln via placing to ease debt

* Places 25.5 million shares at 425 pence/shr

* Proceeds to be used to pre-pay some debt

* Sees FY EBITDA in line at current commodity prices

* Shares pare losses after hitting all-time low (Adds results of placing, updates shares)

LONDON, June 23 (Reuters) - UK power station operator Drax Group (DRX.L) said it will pay off some of its debt early to protect its credit rating, using 108.2 million pounds ($178.2 million) raised in a placing on Tuesday.

Finance Director Tony Quinlan told Reuters the placing of shares at 425 pence each, was a direct response to a downgrade of its debt by ratings agency Standard & Poor's in May. He said any further downgrade, which would take Drax to sub-investment grade status, would limit the company's financial headroom. S&P downgraded the group's long-term corporate credit ratings to BB+ from BBB- and its debt rating to BBB- from BBB in May, retaining a negative outlook. It cited falling earnings this year and the rising business risk from Drax's focus on coal-based power generation.[ID:nRnsO3733S]

"We've discussed it with S&P and we're confident these actions will help address their concerns," Quinlan said. "We could have done nothing, but it was not a risk we wanted to carry."

Shares in the group, which runs the UK's largest coal-fired power plant, in Selby, northern England, hit an all-time low of 419 pence on Tuesday morning but pared losses and were trading down 2.7 percent at 437 pence at 1231 GMT.

The proceeds from the placing of 25.5 million shares, equivalent to 7.5 percent of Drax's equity, will be used to pay off some of the company's 370 million pounds of debt, before the company refinances the balance, which must be done by December 2010.

"We're looking to get the refinancing wrapped up this year," Quinlan said. "On completion of the refinancing, we expect S&P to remove the negative outlook from our ratings and move us to stable.

HEALTHIER SPREADS

In a trading update, the group, which provides 7 percent of the UK's electricity, said full-year core earnings will meet consensus forecasts if commodity prices remain at current levels.

Analysts currently forecast on average a 33 percent drop in full-year EBITDA to 299 million pounds, according to Reuters Estimates, and Quinlan told Reuters he did not expect that consensus to change following Tuesday's statement.

Drax also said it has already sold 80 percent of its output for 2010 at higher average margins than for 2009.

Quinlan added that spreads, the difference between the price paid for its electricity and the price to generate it and which have hit lows this year, were looking quite healthy for this winter.

Deutsche Bank acted as sole bookrunner and placing agent. ($1=.6070 Pound) (Reporting by Victoria Bryan; Editing by Rupert Winchester and Elaine Hardcastle)