published Friday, May 3rd, 2013

Credit agencies affirm TVA rating but sale proposal could boost borrowing rates

Credit rating agencies affirmed their top bond rating for the Tennessee Valley Authority following meetings with TVA executives in New York last week.

But a proposal by the Office of Management and Budget to consider selling TVA could still raise borrowing costs for the federal utility later this year.

In a conference call with analysts today, TVA President Bill Johnson said the utility has not issued any major debt since the Obama administration proposed last month that the government consider selling or privatizing TVA. But the value of TVA bonds has declined and the interest rate to be paid on new debt is likely to rise because of the uncertainty about government backing for TVA if the agency were ultimately to be sold, Johnson said.

“The announcement has affected the spread on our bonds in the bond market, although there hasn’t been a lot of activity with our bonds,” he said. “The impact of all this should become apparent later in the year because we do have a significant amount of refinancing to do by the end of the fiscal year.”

Although TVA is an independent federal corporation, the utility enjoys a favorable bond rating because of the implied backing of its bonds by the federal government.

Johnson, who came to TVA in January after working most of his career at Progress Energy and Duke Energy in North Carolina, said public and private utilities have different financial and governing structures but their main mission of producing and distributing power is the same.

“We believe that the TVA model is a good one and the lowest cost model for carrying out TVA’s mission,” Johnson said.

U.S. Sen. Lamar Alexander, R-Tenn., said just floating the idea of selling TVA will push up borrowing costs for TVA by creating uncertainty about the future of the agency and its government backing for TVA’s $24 billion of debt.

“Just by talking about (selling TVA) raises the price of TVA bonds,” Alexander told reporters during a visit to Chattanooga on Thursday. “It would be much more responsible for the Obama administration to have private conversations with members of Congress about any financial concerns about TVA. The only effect of this is to already raise the cost of borrowing more money for TVA and pushing up electricity rates.”

TVA is meeting with OMB officials to help the administration conduct its strategic review of TVA, but Johnson said he is unsure of the schedule for any report or recommendations.

“We are a creation of the government and will work collaboratively and completely in that review,” Johnson said. “Our job is to serve the people of the Tennessee Valley and we should be receptive to any ideas that improve that service.”

about Dave Flessner...

Dave Flessner is the business editor for the Times Free Press. A journalist for 35 years, Dave has been business editor and projects editor for the Chattanooga Times Free Press, city editor for The Chattanooga Times, business and county reporter for the Chattanooga Times, correspondent for the Lansing State Journal and Ingham County News in Michigan, staff writer for the Hastings Daily Tribune in Nebraska, and news director for WCBN-FM in Michigan. Dave, a native ...

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