Eggborough Power Station‘s 7% bonds of 2022 soared 15 points to 335 as buyers look to land the securities, which have an embedded call option allowing holders to buy equity in the 2 GW coal-fired plant in east Yorkshire, England, in March 2010. According to PFR sister publication Credit Investment News, investors seeking the call option have pushed up trading levels. The notes were trading in the 200-225 range at the beginning of the year, says one analyst. While the yield on the bond seems low, investors in the plant see value in owning it and flipping it down the road.
The sale of the bonds consists of two stages: in the first, potential buyers are required to submit preliminary offers. In the second, sellers select preferred offers and then negotiate a final offer. Greenhill, an investment bank, is running the sale, which is in its first stage.
The process is expected to take between one and two months, said the analyst. He adds that 26 parties have expressed interest in the sale. He says investor interest is high because Eggborough, which belongs to British Energy, is considered a rare asset in the U.K. market. “There are not many large coal-fired plants like this one,” he says. British Energy bought Eggborough in early 2000 to complement its nuclear power generation business. The power plant has four 500 MW coal-fired units, each consisting of a single boiler and a single shaft steam turbine. Two of the four units have been fitted with flue gas de-sulphurization equipment to reduce emissions.
Investors that have submitted bids include hedge funds and private equity firms, said the analyst. He added investors outside of the U.K. have expressed interest, but declined to comment on specific bidders. The bonds have a face value of £134 million. A spokesman for British Energy says the sale is speculation and declined to comment.
Rising power prices have attracted investors to the U.K. power sector over the past year. Investor interest in the sector was evident in the rising trading levels of Drax Power, another U.K. coal fired power plant, which saw its debt soar 27 points to 427 on the eve of its listing on the London Stock Exchange in December last year.