published Tuesday, April 26th, 2011

S&P waves red flag over TVA’s debt

Credit rater says the warning rises solely from Washington’s financial problems

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    TVA Offices in Chattanooga, Tennessee
    Staff Photo by Dan Henry/Chattanooga Times Free Press

A week after Standard and Poor’s downgraded its outlook on federal bonds, the credit ratings service Monday issued a similar negative warning about debt issued by the Tennessee Valley Authority.

S&P credit analyst Theodore Chapman reaffirmed the top AAA long-term rating for the TVA on bonds it issues to finance its power projects. But Chapman said as a wholly owned corporation of the federal government, the negative warning for federal debt may mean that the government is less likely to stand behind TVA debt issues. S&P downgraded TVA’s outlook from “stable” to “negative” — the worst rating for TVA debt in two decades.

“The change reflects our revision of the outlook on the United States of America to negative from stable,” Chapman said in a statement released after the markets closed Monday.

S&P issued the negative warning on U.S. debt last week because of the rising $14 trillion federal debt and the likelihood that the federal government will reach its authorized borrowing authority within the next couple of months. Congress is now debating whether to raise the federal borrowing cap.

S&P said TVA’s stand-alone credit profile is AA- and “our view that there is an extremely high likelihood that the U.S. government would provide extraordinary support to TVA in the event of financial distress,” Chapman said.

The negative warning is the first for TVA since S&P gave a similar downgrade caution from 1989 to 1991 related to TVA’s own financial condition.

“The change in outlook on TVA, as a wholly owned government corporation, is entirely related to the change in outlook for the U.S. government,” TVA spokesman Scott Brooks said. “It does not reflect a change in TVA’s financial strength or any TVA event.”

TVA is completely self-funded and does not rely on financial support from the government, although the federal utility enjoys the implicit backing of the U.S. government.

Brooks said the revised outlook “is not expected to have a material impact on TVA,” although it could raise the interest rates TVA must pay when it issues new debt or refinances part of its existing $26 billion in long-term debt obligations.

Contact Dave Flessner at or at 757-6340

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