Close Close

Portfolio > Alternative Investments > Private Equity

Hedger Gives Restructuring of British Energy A New Spin

Your article was successfully shared with the contacts you provided.

LONDON (–Polygon Investment Partners LLP believes that it can get a better deal for the stockholders of British Energy plc than the government’s pending restructuring plan will give them and is hinting that it will litigate to stop that plan.

Polygon, through its Polygon Global Opportunities Master fund, owns 5.6% of the equity of BE. It said in a July 25 statement that it intends to vote against the proposed restructuring “provided shareholders receive a vote in any proposed delisting request of the company.”

The government’s restructuring plan, announced in October 2003, was the result of negotiations involving bondholders, significant but unsecured creditors, power purchase agreement counterparties and a group of secured creditors known as the Eggborough Banks (because they provided financing for the purpose of the Eggborough coal-fired power plant from National Power in 2000). The plan’s key proposal would cancel existing shares of equity and offer shareholders equity in the new company equal to only 2.5%, along with warrants to subscribe for another 5%.

The plan gives existing shareholders limited choice as voters. They can vote in favor of the restructuring. Or they can vote against it but approve a fall-back proposal whereby BE sells all its businesses and assets to the restructured company. In that case, the old shareholders will receive only the warrants. If they vote against both proposals, the plan provides, they receive neither shares nor warrants in the new company.

Polygon’s alternative plan, on the other hand, would provide approximately 30% of the equity of the new company to the old shareholders, partly by providing new financing and partly at the expense of certain of the purchase power agreement counterparties, and it would offer the Eggborough banks with “a small amount of additional cash in addition to their existing entitlement under the Proposed Restructuring.”

A spokesman for BE, Michael Corner-Jones, said Tuesday that the company hasn’t seen a full outline of the proposal, “all we know is what’s been in the press.”

Polygon said that it approached BE last month with its proposal, and it was rejected, because any change of plan would violate its legal commitments to creditors. Polygon believes, though, that the company may be able to free itself from those agreements due to a forthcoming rule change at the Financial Services Authority regarding delisting procedures. If FSA changes the rule before implementation of the existing plan, then BE will have to obtain shareholder approval to delist. A negative vote on the delisting, the hedge fund believes, will leave BE free to negotiate what the hedge fund considers a more equitable settlement. Otherwise, Polygon said that it is considering whether the proposed restructuring violates the rights of shareholders under the law of the European Union or under the UK Human Rights Act of 1998.

On the issue of the delisting vote, Mr. Corner-Jones said that an issue for the U.K. Listing Authority, and he wasn’t at liberty to discuss what talks BE might have had with the UKLA.

[email protected]

Contact Robert F. Keane with comments or questions at

“mailto:[email protected]”>[email protected]