£2bn rescue for British Energy

TRADE Secretary Patricia Hewitt said that near-bankrupt nuclear generator British Energy is not out of the woods despite today's signing of a long-awaited £2bn debt-for-equity rescue.

After teetering on the edge of insolvency for 13 months, Britain's largest electricity producer announced the terms of a restructuring, which sees lending banks and bondholders write off large swathes of debt in turn for new shares.

This arrangement all but wipes out existing shareholders, many of whom bought at privatisation seven years ago.

However, Hewitt issued a warning saying she would not hesitate to pull the plug on BE if its loss-making position worsens or if the European Union rules the Government's financial support as illegal State aid.

She said: 'The Government remains well prepared for administration.'

Insolvency accountants from KPMG remain on standby. Under today's agreement, the Government is continuing to underwrite British Energy by keeping £200m of credit lines open. It has also signalled that it will fund the company's nuclear clean up liabilities, believed to stand at about £3bn.

The complex agreement was finally signed after all-night negotiations at the Canary Wharf offices of lawyers Clifford Chance.

Credit agencies said bonds to be issued by the generator to raise new debt would get nothing above a 'speculative' rating. British Energy shares, trading at just a fraction of their 750p high, were up 0.87p at 6.22p.