Drax in £100 mln placing to protect rating

LONDON (Reuters) - Power station operator Drax Group (DRX.L) will raise about 100 million pounds in a placing to pay debt in a bid to protect its credit rating following a recent downgrade, sending its shares to an all-time low. Ratings agency Standard & Poor's 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.

Finance Director Tony Quinlan told Reuters the placing was a direct response to the S&P announcement, as any further downgrade, which would take Drax to sub-investment grade status, would limit the company's financial headroom.

"We've discussed it with S&P and we're confident these actions will help address their concerns," he said via telephone. "We've 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, were down 4.3 percent to 429.75 pence by 0839 GMT, having earlier hit an all-time low of 419 pence.

The proceeds from the placing of up to 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 separate 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 is acting as sole bookrunner and placing agent for the placing.

(Reporting by Victoria Bryan; Editing by Paul Sandle and Rupert Winchester)