Buy British Energy
argues Evil Knievil of www.t1ps.com

British Energy has paid for many a lunch over the past couple of years. I have been shorting it aggressively Convinced that it was going bust I regarded it as the quickest way of making money since Cherie Blair and her ghastly husband turned freeloading into an art form. But, while the liar-in-chief and the wicked witch continue will continue to carry on sponging forever, other things have changed and I am now aggressively long of British Energy to the tune of five million shares. I admit my timing was not perfect - I am only running at break-even at this stage but I am expecting to trouser it in a big way over the next six months. In putting together this bull case I am most indebted to the publication Utilities Week - a must read in every household and whose words I have cribbed liberally.

The Bail Out

British Energy runs nuclear power stations. As such it has high fixed costs and always has a potential liability for decommissioning its plants when they come to the end of their useful lives. Its problems started when a slump in electricity prices meant that it was not covering those fixed costs which exposed the fact that its borrowings were unsupportable. It was this that allowed me to profit so greatly on the short tack.

Then the Government stepped in with a "rescue" plan. Surprisingly for a body which shows an ability to waste taxpayers' cash of unmatched proportions this did not involve a huge bail out. Instead it involves the Government, bond-holders, BNFL, other creditors and an array of vastly overpaid parasites (i.e. advisors on a success only fee) reconstructing the business such that equity holders will be diluted to obliteration. This motley crew are determined that their proposed reconstruction goes ahead and the board seems happy to play ball but any such proposal must be agreed by shareholders and I think that the times they are a changin'.

If the reconstruction proceeds, existing shareholders will be diluted to 2.5% of the equity plus warrants to buy a further 5%. Since 65% of free cash flow will be diverted to the Nuclear Liabilities Fund (i.e. decommissioning), this 7.5% becomes an economic interest of just 2.6%. This is clearly not an attractive proposition and if it goes through the shares, at 7.65p may be overvalued. However, I think that even on the current reconstruction terms, 15p-25p will prove to be the eventual outturn.

In the interim results, announced in December, and again with the latest quarterlies British Energy warned shareholders that if they did not support the proposed reconstruction by approving either a scheme of arrangement or the disposal of the company, the shares would be de-listed and the reconstruction completed anyway. But if it can be shown that the company is a going concern without the reconstruction, Turkey's won't vote for Christmas and shareholders (who have to approve any deal) will block it.

The Upside from a No Vote

The disposal of British Energy's 50% interest in Amergen, netted 160 million pounds. This repaid the 94 million owed to the Government so removing its ability to force insolvency by calling in its loan. It leaves three groups of creditors to be satisfied from the remaining 66 million pounds, the 20 million pounds of other cash, any cash flow from trading since 12th December and any cash that can be released from the 359 million pounds tied up in trading collateral.

Group one are the bondholders, owed 408 million. The 2003 bonds have matured, but British Energy can probably pay the 110 million pounds owed to the holders from its cash. The 2006 and 2016 bonds may be in default even though their interest continues to be paid. They are very generously treated in the proposed reconstruction, as a result of which the bonds are trading well above par. They may have the right to put British Energy into receivership if the reconstruction is voted down, but it would not be in their interest to do so. In a liquidation, they would receive very little, whereas, if British Energy continues to trade, they will continue to receive interest and can be repaid in full on redemption.

The second group of creditors are the Banks who lent 475 million pounds to finance the purchase of the 2000 MW coal-fired Eggborough power station. They are being offered 150 million pounds in new bonds and 14% of the new shares being issued, worth some 150 million pounds at 5p each. The value of Eggborough has risen significantly in the last year. It is half the size of the Drax power station, and, like Drax, is being fitted with a Flue Gas Desulphurisation plant, due for completion this year. In December, Drax's creditors rejected an offer by International Power to buy up to 36% of its equity and 15% of its debt. Since then, the value of Drax's debt in the secondary market has continued to rise, and Drax is now valued in the market at about 1.25 billion pounds . This suggests that Eggborough is worth closer to 600 million pounds than the 300 million pounds it is valued at in the secondary debt market. If the reconstruction fails, the Eggborough banks will be significantly better off whether or not the power station is sold.

The third group of creditors are the three parties claiming 316 million pounds in relation to onerous trading contracts. Two of the contracts, accounting for half the total, were terminated in 2003, making their claims payable. The third contract, with Teeside Power, may be renegotiable. The sharp rise in electricity prices makes this contract to buy high-priced electricity no longer a financial liability, but 158 million pounds must still be found to satisfy the other two.



In the short term, British Energy would struggle to satisfy these creditors, but given time, the prospects look better. 75 million pounds was absorbed into working capital in the first half of 2003/4, which may be reversible. The Board is "exploring initiatives to reduce the demand for trading collateral," which should diminish as the forward sales run out. Halving the collateral would release 180 million pounds.

And Critically...

The strength of electricity prices means that British Energy will be highly cash-generative when it can take advantage of current prices, and only half of output for the year to 31st March 2005 has been sold forward at low prices. Implementation of the Emission Trading Scheme, due to start on January 1st, 2005, could add a further 10% to electricity prices, increasing profits and cash flow by 160 million pounds per annum. What British Energy's shareholders need is time.

Fortunately, the bureaucracy and delays of the European Union are working in our favour. The EU is not expected to reach a decision on the restructuring until the middle of 2004, delaying a shareholder vote until the Autumn. With luck, if it runs true to form the EU will take longer, postponing the vote until 2005. This gives more time for cash flow to build up and for the prospects to look more secure. It also gives larger shareholders time to prepare an alternative plan. This is necessary because British Energy is firmly committed to the restructuring. Shareholders cannot look to their Board to safeguard their interests and indeed should think about handing out P45s liberally to the top table.

While negotiating with the creditors is the short-term priority of such a plan, there are other considerations. If the reconstruction is voted down, it is quite possible that the government will force the reconstruction through by Act of Parliament, leaving shareholders with nothing. But does this sordid little Government really want to repeat its Railtrack fiasco with an election looming?

The key to this gamble - and I admit it is such - is that electricity prices are increasing which makes a big difference to cashflow. If shareholders are given time to work out an alternative plan, British Energy will still need to raise cash via a rights issue but it is not ludicrous to suggest that current investors will be left owning 65% of the company rather than 2.5%. In other words the shares would be worth 150p each and possibly rather more.

There are obvious risks. The board might steamroller shareholders into accepting a deal that is patently not in the interests of shareholders. Electricity prices might fall. Big shareholders might cave in cravenly. The EU might whizz through approval giving shareholders no time to organise. Okay, there is no risk of the EU being efficient that was my little joke. But there are risks. If I am wrong these shares could conceivably be overvalued but could even in this scenario head up towards 20p. But if I am right 150p here we come. On a risk reward basis that looks good to me.

Key Data

EPIC: BGY
NMS: 150,000
Market Cap: 47 million pounds
Market: Full
Spread: 7.6-7.7p

Press mention : will appear in tomorrow's Daily Mail Newspaper.

British Energy, down 1/4p at 19p with the A shares off 1/4p at 15 1/2p, continues to see a build-up in its ordinary shares by American investors confident they can obtain better terms from the company over its proposed refinancing.


US financier Brian Stark bought an extra 5m shares on Friday, stretching his total holding to 42.8m, or almost 7%.


Chairman Adrian Montagu said last week that British Energy had made considerable progress in agreeing its restructuring proposals. But shareholders such as Stark, US securities house Goldman Sachs and hedge fund Polygon reckon the terms are weighed too heavily in favour of the bondholders.

http://www.thisismoney.com/20040809/nm81219.html

Interesting !!!

British Energy rebels gun for Montague
By Andrew Murray-Watson (Filed: 08/08/2004)


Rebel shareholders in British Energy are preparing to call an extraordinary general meeting to force out Adrian Montague, the company's chairman, if he refuses to reconsider plans to restructure the nuclear power generator.



Invesco, which holds a 6 per cent stake in British Energy, and Polygon, the secretive hedge fund, which has a 5.6 per cent stake, are believed to have agreed that an EGM vote to oust Montague may be the only way to halt the restructuring. The two investors are fierce opponents of a government-backed rescue package for British Energy, which will leave shareholders with just 2.5 per cent of the equity in the new company.

Montague told shareholders at British Energy's annual meeting last Thursday that he would be forced to delist the company if they oppose the rescue deal at a vote scheduled for October.

An executive close to the rebel group said: "We have nothing against Montague himself, and we will try to resolve this dispute amicably. But at the end of the day, requisitioning an EGM in a bid to get him replaced is something that is a very real option."

Between them Invesco and Polygon have more than the 10 per cent stake required to call an EGM. But to force out Montague they will need the support of other institutional investors in the nuclear generator.

The backing of Brandes, the secretive US fund manager which holds a 6.9 per cent stake, will be crucial. So far, Brandes has remained silent. Although it is believed to be sympathetic towards Polygon and Invesco's demands to change the restructuring terms, it is unclear whether it would back the removal of Montague.

Brandes recently played a key role in the battle for control of Marks & Spencer as the largest shareholder, with a 12 per cent holding at one stage. It said it would support the takeover attempt by retail entrepreneur Philip Green, but only if it was approved by the M&S board.

The restructuring of British Energy is fraught with legal challenges. The company's board believes that the deal, which is still subject to the approval of the European Commission, cannot be stopped by shareholders.

The rescue package was drawn up when falling wholesale electricity prices led British Energy's nuclear plants to lose 5m a week, threatening the company with total collapse.

Under the terms of the agreement, the company's bondholders and the Government will receive the vast bulk of the shares, with existing shareholders left with just 2.5 per cent, plus warrants for a further 5 per cent.

Although Polygon has stated that the current restructuring plan is legally binding, it believes there is an opportunity at the end of January, when the current agreement with creditors ends, to renegotiate a better deal for shareholders. It has devised an alternative plan which would give investors 30 per cent of the equity.

http://www.money.telegraph.co.uk/money/main.jhtml?xml=/money/2004/08/08/cnbrnrg08.xml&menuId=242&sSheet=/money/2004/08/09/ixcity.html

British Energy: fresh solvency fears

Oliver Morgan
Sunday August 15, 2004
The Observer

Concern is mounting that British Energy may have difficulty convincing the government of its future solvency - because of rising electricity prices.
Concerns centre on the need for the nuclear generator to put cash aside to cover liabilities to its electricity customers who bought up almost all of its output for the next year. BE must hold cash so that, if it ceases trading, it has funds to pay customers who must meet their needs in the open market. The higher the price, the higher the collateral needed. But BE's cashflow does not rise, as it has sold forward its output.

BE was forced into a government-sponsored restructuring in 2002 when the electricity price slumped. In the BE annual report, chief executive Mike Alexander discloses that BE's collateral requirement has risen to between 270 million and 320m as prices have risen 'based on the current sales mix and no further undue volatility in the forward curve for electricity prices'.

Prices are expected to rise; this year's winter contract is about 30 per megawatt hour, in 2005 it is 32.50, according to consultants Heren. But one senior source said there were deep concerns about steeper rises and about volatility in electricity and energy markets in the coming two years.

The restructuring must be completed by 31 January and get European Commission approval. But Trade and Industry Secretary Patricia Hewitt must agree BE can generate sufficient cash to remain a going concern. Sources say DTI officials have concerns over the collateral but a company spokesman said funds were sufficient.

http://observer.guardian.co.uk/business/story/0,6903,1283123,00.html

anybody got any views on where they see british energy going in the short term...?? still looking to trade the stock around 20p...

hi peter, been watching this myself, i had been trading from 9p up to 18.5p, i made good money from this. personally i would be shorting it now, i think it's going back to sub 10p in the coming months, but i'm staying well away from it from now on, i've made a new car and a nice holiday from it , which is more than can be said for the poor shareholders!!!

i'm going to start trading Superscape again tomorrow results out soon, the price has dropped 25% on good newsflow, i think there is a few quid to be made.

Released today : Brian Stark has bought more shares in the last week or so.


RNS Number:0707C
British Energy PLC
17 August 2004



17 August 2004

British Energy plc


Notification for the purposes of sections 198-203 Companies Act 1985 - British
Energy plc (the "Company")

Brian J. Stark, of business address 3600 South Lake Drive, St. Francis,
Wisconsin 53253, USA, hereby gives the Company notice as follows:

1. At close of business on 05 August 2004 Mr Stark was interested in a
total of 42,841,175 shares of the Company.

2. On 13 August 2004 his interest increased (by way of further purchases)
so that he became interested in a total of 44,841,175. Of these
44,841,175 shares:

(A) the interest in 33,630,881 shares arose from the holding registered in
the name of Shepherd Investments International Ltd, with registered office
c/o HWR Services Limited, Craigmuir Chambers, P.O. Box 71, Road Town,
Tortola, British Virgin Islands ("Shepherd"), which is managed by Stark
Offshore Management LLC, with registered office at 3600 South Lake Drive,
St. Francis, Wisconsin 53253, USA ("Stark Offshore"). Mr Stark controls
at least one-third of the voting power of Stark Offshore; and

(B) the interest in 11,210,294 shares arose from the holding registered in
the name of Stark International, with registered office c/o Arthur Morris,
Christensen & Co., Century House, 31 Richmond Road, Hamilton HM 08,
Bermuda ("Stark"), whose managing general partner is Stark Onshore
Management LLC, with registered offices at 3600 South Lake Drive,
St. Francis, Wisconsin 53253, USA ("Stark Onshore"). Mr Stark controls at
least one-third of the voting power of Stark Onshore.

3. (A) of the 33,630,881 shares held by Shepherd as at close of business on
13 August 2004, 30,818,381 were ordinary shares and 2,812,500 were
ordinary shares represented by an interest in 37,500 American Depositary
Receipts ("ADRs").

(B) of the 11,210,294 shares held by Stark as at close of business on
13 August 2004, 10,272,794 were ordinary shares and 937,500 were ordinary
shares represented by an interest in 12,500 ADRs.

4. The interests in the shares detailed at paragraphs 1-3 above do not
arise by virtue of such an interest as is mentioned in s.208(5) Companies
Act 1985.

This information is provided by RNS
The company news service from the London Stock Exchange
END

HOLBRGDIBBBGGSR

Released Yesterday :

RNS Number:1101C
British Energy PLC
18 August 2004


18 August 2004

British Energy plc

Notification for the purposes of sections 198-203 Companies Act 1985 - British
Energy plc (the "Company").

The Company has today received notification from Polygon Investment Partners LLP
("Polygon") that they have a notifiable interest in the share capital of British
Energy plc.

The shares in which Polygon are interested are 35,000,000 ordinary shares of 44
28/43p each in the capital of the Company (the "Shares"), representing 5.64% of
the allotted, called up and fully paid share capital. Polygon's interest in
these Shares arises by virtue of section 208 of the Act. The Shares are
registered in the name of Vidacos Nominees UBS London - 2303, 25 Molesworth
Street, Lewisham, London, SE13 7EX. The beneficial owner of the shares is
Polygon Global Opportunities Masterfund.


This information is provided by RNS
The company news service from the London Stock Exchange
END

"FOR IMMEDIATE RELEASE August 31, 2004

PRESS RELEASE

BRITISH ENERGY PLC:

POLYGON ANNOUNCES A MODIFICATION TO THE POLYGON REVISED PROPOSAL, A CALL FOR AN EGM, AND INTENTION TO FORM AN AD HOC COMMITTEE OF SHAREHOLDERS

On July 25th Polygon Investments - a UK investment firm - announced that it had made an approach to British Energy ("the Company" in June of this year with a revised restructuring proposal ("the Polygon Revised Proposal" that would be capable of providing additional value to current shareholders. The approach was rejected.

In the highlights of the Polygon Revised Proposal we mentioned that the UK Government would receive the same terms and economics as under the Proposed Restructuring of the Company (as defined in the Company press release of October 2003). We now believe that, due to the improving economic circumstances for the Company, it is possible to offer the UK Government a substantially better deal than that outlined under the Proposed Restructuring. The significance of this improvement to the Polygon Revised Proposal is that we believe it may help the Company to get a better deal for shareholders as the UK Government will seek to get the best deal possible for taxpayers. In addition, the European Commission, under the Commission's Rescue and Restructuring Guidelines ("the Guidelines", requires that aid be limited to the "strict minimum needed to enable restructuring to be undertaken in the light of existing financial resources" (See paragraph 40 of the Guidelines; paragraph 52 of the new Rescue and Restructuring Guidelines, and paragraph 210 of the Commissions invitation to submit comments on the state aid for the Company (OJ 2003C180/5).

Polygon reiterates its willingness to discuss this Polygon Revised Proposal with the Company, representatives of the UK Government, and representatives of the European Commission.

In addition, Polygon Investments, in conjunction with other large shareholders of the company announce today that they intend to requisition an Extraordinary General Meeting of British Energy PLC. The appropriate documents will be submitted to British Energy shortly.

The purpose of the EGM is to consider and vote on a number of resolutions (full details of which are attached in the appendix to this press release). These include resolutions seeking to ensure that the British Energy board will not seek to de-list the Company's shares from the Official List, or make a material disposal of the Company's assets, without shareholders' prior approval. They also include a resolution asking the board to renegotiate the terms of the existing restructuring proposal so that it is more favourable to shareholders.

Polygon also intends to form an ad hoc committee of shareholders to co-ordinate information about the proposed shareholder vote and other relevant matters. We believe that the Company should also pay the reasonable legal and financial fees and expenses of the ad hoc shareholders committee, as the Company continues to pay such fees for creditors. This claim relates to the Creditor Restructuring Agreement made as of September 30th 2003 between, inter alia, the Company, certain of its subsidiaries, certain of its creditors, certain of its bankers, British Nuclear Fuels PLC, and certain of its bondholders and in particular, clauses 9.1 and 9.2 thereof, relating to the payment of reasonable fees and expenses incurred by certain parties interested in the restructuring of the Company.

General Enquiries to:

M: Communications

Tom Hampson +44 (0)20 7153 1530
+44(0) 7974 228852
hampson@mcomgroup.com


Shareholder Enquiries to:

Gemma Knowles knowles@mcomgroup.com

Polygon has also set up a website, www.be-fair.org.


NOTES TO EDITORS:

Background on Polygon

Polygon Investment Partners LLP ("Polygon" is a global private investment firm based in London and New York. It is authorised and regulated by the Financial Services Authority. Polygon manages a multi-strategy investment fund and invests in a wide range of publicly traded securities. The firm currently has over $1.35 billion under management. www.polygoninv.com


APPENDIX: PROPOSED EGM RESOLUTIONS

Special Resolutions
1. THAT the articles of association of the Company be amended by the inclusion of the following article to be designated article 88(A) immediately prior to existing article 89:
88(A) Power to cancel listing
Where the board wishes to cancel the listing of the Companys securities from the official list of the UK Listing Authority and/or its trading on the London Stock Exchanges market for listed securities and/or any other exchange or market upon which such securities are listed or traded, the board will not commence any procedures to, or cancel any such listing or trading without the previous sanction of a special resolution of the Company.
2. THAT the board be and is hereby directed that no amendment or extension of time for allowing performance of, or satisfaction of conditions to, the Creditor Restructuring Agreement made as of 30th September 2003 between, inter alia, the Company, certain of its subsidiaries, certain of its creditors, certain of its bankers, British Nuclear Fuels PLC, and certain of its bondholders (as may have been amended, varied or novated prior to the date of this resolution) be allowed, granted or made without the previous sanction of a special resolution of the Company.
3. THAT the board be and is hereby directed not to sell the assets or undertaking of the Company or the assets or undertaking of any subsidiary of the Company or the shares in any subsidiary of the Company or issue or allow the issue of any new shares in any subsidiary of the Company to any person in circumstances where any such action would require the approval of shareholders under the Listing Rules of the UK Listing Authority (assuming that the Company was listed on the Official List of the UK Listing Authority at the relevant time) in any case without the previous sanction of a special resolution of the Company.

Ordinary Resolutions
4. THAT the board be and is hereby advised that shareholders wish them to use all reasonable efforts to obtain for holders of shares in the capital of the Company terms that are more advantageous to such holders than the terms currently available to them pursuant to the Creditor Restructuring Agreement made as of 30th September 2003 between, inter alia, the Company, certain of its subsidiaries, certain of its creditors, certain of its bankers, British Nuclear Fuels PLC and certain of is bondholders (as may have been amended, varied or novated prior to the date of this resolution).
5. THAT the board be and is hereby advised that shareholders do not wish any application to the UK Listing Authority and/or the London Stock Exchange to cancel the listing and/or trading of the securities of the Company to be made, and wish no steps be taken to cancel such listing and/or trading (including notification to a Regulatory Information Service of such cancellation or despatch of a circular to shareholders in respect of such cancellation) pursuant to the rules of the UK Listing Authority or otherwise without the previous sanction of a special resolution of the Company."

BE to spilt into 3:

http://www.reuters.co.uk/financeCompanyNewsArticle.jhtml;jsessionid=eccles?storyID=6126642&ticker=BGY.L&infoType=news&compname=BR.ENERGY

any idea what the implication to shareholders is since BGY is splitting into 3 seperate companies to win European Commission approval?

IMHO the implication of the 3 way split is neutral (as the trader quoted in the report said). To me the timing of this story suggests PR spin from BE to try to give the impression that the "official" restructuring is inevitable and also deflect attention away from Polygons announcement of the previous day.

I agree LordCake - However buyers beware its a big drop from here if the board gets its way shareholders will get nowt! As I see it the only way to stop the mega dilution is for the government to step in as it did with Railtrack.
I doubt it will happen this time but we shall see.
Bering in mind the share building going on over the past twelve months
and an almost constant rise someone may know the outcome already!!

Thanks, Lord Cake.

Balanced report on the BBC website: http://news.bbc.co.uk/1/hi/business/3618616.stm

Also from Radio 4 today: http://www.be-fair.org/media/bbcradio4_03.09.04.mp3

British Energy rebels offer 800m to scupper shake-up
By Tim Webb
05 September 2004


Rebel shareholders of nuclear generator British Energy have offered to buy out its 800m of debt, in effect cancelling its financial restructuring.

They have been holding secret talks with the European Commission aimed at putting together an alternative rescue plan for the company, which was saved from bankruptcy by the Government two years ago.

The EC is currently examining the existing government-backed restructuring, which would leave shareholders with just 2.5 per cent of the equity. The EC is expected to give its approval within weeks, unless the rebel shareholders can persuade it to back their own plan.

The hedge fund Polygon, which is leading the revolt, believes British Energy is worth around 1.5bn. But the company has a current stock market value of only 140m because of the proposed restructuring, which favours bondholders over shareholders. British Energy bonds have been trading well above par, at around 1.70 per pound.

Polygon says the restructuring should be changed to take into account higher electricity prices, which should boost its stock market value.

Under the proposals suggested to EC officials at the end of last week, the rebel shareholders - Polygon, Brandes and Invesco, who together own 22 per cent of the company - would arrange up to 800m in bridging finance to buy out bondholders holding around 400m of debt at face value. The shareholders would also repay the rest of the bank loans and debt. In return, the shareholders would receive new shares issued in the company.

Polygon argues that it can secure a better deal for UK taxpayers by cutting the amount the Government has to contribute to its long-term decommissioning liabilities. British Energy argues that without the proposed restructuring, the company would have gone into administration and that terms are binding.

On Friday afternoon, Polygon and Brandes, who together hold 12.5 per cent of British Energy's shares, also notified the company in writing that they are seeking an extraordinary general meeting. Under listing rules, a company must agree to hold a meeting if shareholders representing more than 10 per cent of its shares demand it.

British Energy has until the last week of October to hold the meeting. Polygon wants shareholders to be given the opportunity to vote on the government-backed restructuring.

If shareholders vote against the restructuring but the company, as it has indicated, goes ahead anyway, Polygon is threatening legal action. It would claim that British Energy's directors had breached their fiduciary duty to look after the interests of shareholders.
5 September 2004 01:07

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09/09/04 00:16 UK taxpayer burdened with 1.7 bln stg of British Energy liabilities - MPs

They want a brighter future for the company....
The management should not receive any bonuses if they go ahead with the current D4E proposal....
Good for the company and the shareholders.

Yes I agree - however I see sellers are out in force.
This must be good for shareholders and in my mind Im convinced
Sharehoders will be given a better deal.
No doubt!!

cAN ANYONE PLEASE EXPLAIN THE RAFT OF 100 SHARE BUYS GOING THROUGH THIS MORNING?
IS THIS CORRECT DO YOU THINK?

if this is a done and dusted deal and shareholders are to get only 7%
why are the creditors making such a fuss.

If there is any shred of a chance that terms could be re-negotiated
this baby will fly. And as it ticks up yet again someone must know something?



--------------------------------------------------------------------------------



Legal spat breaks out in British Energy rescue
Tue 14 September, 2004 16:56

By Gerard Wynn

LONDON (Reuters) - A war of words between minority investor Polygon and creditors of indebted nuclear power group British Energy has broken out after they wrangled over a rescue plan carving up the company's equity.

In October 2003 British Energy, its creditors and the government agreed a rescue plan which proposed that creditors would get over 90 percent of undiluted equity in a restructured company in exchange for cancelling more than 1.3 billion pounds of debt, leaving shareholders with around seven percent.

But an exceptional increase in power prices since October has meant that the deal effectively over-compensates bondholders, with bonds trading at 176 percent of face value on Tuesday, indicating the level of over-payment.

Last week minority shareholder Polygon demanded an EGM after BE said it would de-list the company -- leaving shareholders with nothing -- if shareholders did not approve the rescue plan.

"If the company de-listed we would proceed to take legal action, as we've said we would," a source close to Polygon said on Tuesday.

Now creditors have joined the fray, saying that a de-listing was legal if required to see the rescue deal through.

"It is dangerous for your client to contend that the company should not take steps to promulgate the CRA (creditor restructuring agreement), since that is exactly what the company is bound to do," lawyers Cadwalader, Wickersham & Taft LLP, acting for an ad hoc committee of BE creditors, said in a letter to Polygon's lawyers, dated September 14, obtained by Reuters.

The spat has escalated in anticipation of imminent approval for the rescue plan by the European Commission's competition authorities, after which the shareholder vote and implementation of the debt swap can go ahead.

If BE does not call an EGM, Polygon would be in a position to sue the company, while if it does call an EGM and shareholders voted to prevent a de-listing, the creditors could sue the company for breaching the CRA, a source familiar with the situation told Reuters.