Listed UK company Drax Group (Drax), which is seeking to convert a coal-fired power station into a biomass-fuelled facility, has become the first to receive assistance from the UK government’s £40 billion (€47.3 billion; $61.7 billion) Guarantees Scheme.
Drax has agreed a £75 million amortising loan facility maturing in June 2018 with UK life assurance firm Friends Life, underpinned by a guarantee from HM Treasury. The loan replaces £50 million of a £100 million amortising loan facility agreed with the UK Green Investment Bank in December 2012. Barclays acted as financial adviser on the deal.
A statement from HM Treasury said the guarantee was seen as “critical” to the financing and enabled Drax to reach a wider group of investors than would have been possible without the guarantee.
The Friends Life/guarantee funding represents one element of a wider funding programme for the Drax scheme, which also includes: £190 million from an equity placing in October 2012; a £100 million amortising loan facility agreed with the Prudential/M&G UK Companies Financing Fund in July 2012; a £400 million revolving credit facility maturing in April 2016; and the remaining £50 million amortising term loan facility with the UK Green Investment Bank.
The UK Guarantees Scheme was launched last year as a way of using the government’s balance sheet to kick-start infrastructure projects that would otherwise struggle to access the necessary finance. The Drax deal, the first to emerge from the scheme, comes four months after fast-track legislation put it onto the statute books.
Tony Quinlan, Drax finance director, described the guarantee as a “critical component of the financing for our project to transform the largest coal-fired power station in the UK into an electricity generator fuelled predominantly by sustainable biomass”.
Based in North Yorkshire, England, Drax power station is named after a nearby village and has a generating capacity of around 3,960 megawatts – the highest in Western Europe – providing about 7 percent of the UK’s electricity supply.