29 November 2002 – The troubles facing British Energy have led to the sacking of chairman Robin Jeffrey who the government have, at least partly, blamed for the company’s difficulties. The announcement made yesterday was part of a restructuring plan that gives the government control over 65 per cent of British Energy’s income.
Trade and Industry Secretary Patricia Hewett said that shareholders, taxpayers and creditors have lost a lot of money and suggested Jeffrey bear this in mind when negotiating his golden handshake to cover the remaining year left under his contract. His position is to be taken by Adrian Montague. Ministers are still incensed that he gave no indication of the company’s perilous finances to the City, just days before he went cap in hand to the government.
The government said that the deal would cost the taxpayer between £150 and £200m ($461m) a year for the next ten years as it intends to underwrite British Energy’s multi-billion pound nuclear clean-up liabilities.
“The government’s overriding priorities have always been to ensure nuclear safety and security of electricity supplies,” said a statement from the Department of Trade and Industry. “This restructuring package is a pragmatic approach that should ensure that these aims are met.”
The restructuring plan requires bondholders and creditors agreeing to an debt- for-equity swap and the government has extended its £650m loan through to March in order for agreement to be reached. Contingency plans have been made should agreement not be possible and British Energy has to go into administration.
British Energy said it would issue £700m worth of new bonds and new shares in exchange for existing bonds, a move that it said would “very significantly” dilute the holdings of its existing shareholders.
Standard & Poor’s reacted to the deal by downgrading British Energy’s corporate rating from ‘B’ to ‘CC’ and its senior unsecured debt rating to ‘C’ from ‘CCC+’. At the same time, the CreditWatch placement has been revised to negative from developing.
“The restructuring plan includes a proposal to swap the existing bonds for a combination of new bonds and new shares, although recovery is expected to be significantly less than par,” said Standard & Poor’s credit analyst Paul Lund. If accepted by creditors, a standstill on payments to creditors would mean that principal will not be paid on the 2003 bonds on March 25, 2003, which would lead to the ratings being lowered to ‘D’ at that point under Standard & Poor’s criteria.
British Energy ran into trouble earlier this year when wholesale power prices tumbled below the cost of production and has been surviving on government money since September. Although the European Commission granted approval for the loan on Wednesday, the company still faces a legal challenge from environmental group Greenpeace and opposition from rival companies who have themselves had difficulties arising from the fall in UK power prices.
One of the conditions of the restructuring is that the company sells its North American assets. British Energy is continuing to negotiate the sale of its interest in Canadian nuclear power company Bruce Power. Cameco Corporation, the world’s biggest uranium supplier, has a right of first offer over British Energy’s 82 per cent stake. “The confirmation by the UK government that the sale of the assets of Bruce Power is important but does not fundamentally change what Cameco has been engaged in for some time now,” said company spokesman Jamie McIntyre.