Europe's largest coal-fired power station operator, Drax Group, which generates seven percent of the UK's electricity at its Selby plant in North Yorkshire has asked its investors for £100 million so that it could preserve its investment grade debt rating.

Ratings agency Standard & Poor's downgraded company's senior debt from BBB to BBB-, just one notch above junk status and its long-term corporate credit ratings from BBB- to BB+.

According to Tony Quinlan, finance director of the company said that the placing was a direct response to the S&P announcement, as any further downgrade would limit the company's financial headroom.

Only last month Standard & Poor's assessed Drax in which it cited falling earnings this year and the rising business risk from Drax's focus on coal-based power generation.
80% of Drax's output has already sold for 2010 at higher average margins than for 2009.

But due to sharp plunge in the wholesale price of electricity since last summer Drax group's "dark green spread" - the margin that company earns over the costs of coal and carbon dioxide emissions permits have squeezed.

Speaking on the issue of raising £100 million from investors, chief executive Dorothy Thompson said, "We are confident that the placing announced will improve the resilience of our capital structure and underpin the investment grade debt rating, which is important in maximizing the value from Drax."

As per company's statement the proceeds from the placing of up to 25.5 million shares, which would be equivalent to 7.5 % of Drax's equity, will be used to pay back some of the company's 370 million pounds of debt. 

The company must refinance the balance by December 2010.

It is worth mentioning here that Deutsche Bank is acting as sole book runner and placing agent for the placing.