The government loan, of which some 60% has been drawn on, was due to
expire on 29 November. In a statement to parliament on 28 November, trade
and industry secretary Patricia Hewitt said the government would "play its
part in allowing the company to attempt solvent restructuring."
The extension of the loan was granted to give BE enough time to obtain
approval from its creditors for the restructuring proposals. BE said that
the restructuring "will require certain significant creditors to
compromise their claims and will lead to very significant dilution of
existing shareholders." Should BE's financial stakeholders not support the
proposals, "the company may be unable to meet its financial obligations as
they fall due and therefore the company may have to take appropriate
insolvency proceedings." Under a debt-for-equity swap, £425 million of new
bonds will be issued in exchange for around £1.26 billion of debt. Of
this, £490 million is owed to BE's banks in relation to the financing of
the Eggborough coal-fired power station. Bondholders are owed £408
million, and three energy trading counterparties are owed £365 million.
The bankrupt US company Enron is one of these, along with Teeside Power
(TPL) and French oil group TotalFinaElf (TFE). BE hopes to complete
negotiations with its creditors by 14 February 2003.
The government assistance to the restructuring proposals is subject to
state aid approval by the European Commission (EC). Once the plan has
agreement in principle from the creditors, the government will notify the
plan to the European Commission for approval. A decision by the EC is
expected by mid-2004, and only then can the restructuring be fully
implemented. The current loan was approved by the EC at the end of
November.
As well as reaching formal agreement with its creditors, the
restructuring requires the successful disposal of BE's interests in Bruce
Power and Amergen. BE is currently in discussions with potential buyers
for its shares in these companies. The company is aiming to complete the
sale of its interest in Bruce by 14 February 2003, and to agree the sale
of its Amergen interest by 30 June 2003. Any proceeds from disposal will
go firstly towards repayment of the government loan, and secondly in
establishing and maintaining cash reserves for the purposes of providing
collateral for trading and operations.
BE has entered into non-binding heads of terms with BNFL, which will
provide for two new contracts to replace the current front-end and
back-end fuel contracts. BNFL has agreed in principle to a freeze on all
payments for storage and reprocessing until 31 March 2003, after which it
would accept reduced payment for spent fuel services until restructuring
is completed.
The restructuring plan seeks to meet all uncontracted nuclear
liabilities, decommissioning liabilities and historic liabilities relating
to spent fuel through a nuclear liability fund (NLF).
BE estimates £2.1 billion liabilities for back-end contracts with BNFL,
which extend to 2086; provisions of approximately £0.7 billion for
uncontracted back-end liabilities; and approximately £0.6 billion for
costs of decommissioning. The present value of the NLF is £0.3 billion.
After restructuring, BE will contribute to the NLF:
• £20 million per year for fixed decommissioning costs. This amount
will reduce as stations close.
• £150,000 for every tonne of fuel loaded into Sizewell B.
• £275 million of new bonds.
• 65% of its free cash flow.
The UK government has agreed to assume financial responsibility for
such liabilities to the extent that they exceed the assets in the NLF. BE
estimates the cost to the government to average £150-200 million per year
for the next 10 years and fall thereafter.