Drax Seeks U.K. Debt Guarantee for Coal to Biomass Switch Plan

Drax Group Plc is set to receive a British government guarantee on debt for its project to switch the U.K.’s largest coal-fired plant to burn biomass.

The Treasury offered to underwrite 75 million pounds ($113 million) of loans Drax plans to seek, Melanie Wedgbury, a spokeswoman for the Selby, England-based company, said today by phone. The guarantee is expected to be finalized when finance contracts are in place by the end of April, she said.

The offer is a boost to Drax’s plans to convert the first three of its six units to burn wood chips, amid criticism the government is failing to spur enough private investment in infrastructure, to aid an economy on the brink of its first triple-dip recession. Britain announced the 40 billion-pound loan-guarantee program in July to encourage infrastructure though none have yet been finalized.

The debt sought by Drax will replace 50 million pounds of U.K. Green Investment Bank loans and supply an additional 25 million pounds, Wedgbury said. There is no change to Drax’s funding needs, she said. Converting three units will cost as much as 700 million pounds and Drax said yesterday Unit 2 was halted for the switch.

“It gives us a good spread of the debt maturities which would clearly lead towards a reduction in risk in terms of refinancing,” she said. “Having HM Treasury support is clearly very welcome.” Britain is seeking to encourage low-carbon power to replace aging fossil-fuel plants.

If signed, Drax may be the first to use the guarantee program, Wedgbury said. The company got a 100 million-pound loan from the Green Investment Bank after receiving the same sum from Prudential Plc and the M&G U.K. Companies Financing Fund. It also raised 190 million pounds in a share placing and got a 400 million-pound revolving credit facility maturing in April 2016 to replace its existing 310 million-pound facility.

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