TVA sells $1 billion of bonds at one of lowest rates ever

TVA sells $1 billion of bonds at one of lowest rates ever

10-year notes sell for 2.875 percent

February 7th, 2017 by Dave Flessner in Breaking News

The Tennessee Valley Authority building (TVA) is lit Wednesday, Nov. 2, 2016.

Photo by Angela Lewis /Times Free Press.

The Tennessee Valley Authority today sold $1 billion of 10-year bonds at the second lowest rate ever for such debt.

TVA priced the bonds today at 2.875 percent, which will refinance some of TVA's existing debt at a lower rate than what TVA previously paid on different debt instruments in the past.

TVA's newest bond issue, which gained a top rating by bond rating agencies because of the implied backing of the federal government for TVA debt, drew demand from money managers, central banks, insurance companies, and a variety of other investors, who buy high grade securities of this maturity. Investors in the United States and overseas agreed today to buy the TVA bonds.

"Having the global market for TVA bonds is beneficial to us and our investor base," TVA Treasurer and Chief Risk Officer Tammy Wilson said in a statement after the bonds were priced. "This week's offering shows the confidence investors around the world place in TVA."

Proceeds from the offering will be used to refinance existing debt at a lower rate, TVA spokesman Jim Hopson said. TVA's current debt totals more than $26 billion in statutory and other long-term borrowing obligations.

TVA last issued bonds with a 10-year maturity in 2014.

"The strong demand from investors for quality assets and continued low rates contributed to a successful outcome for TVA," Wilson said. "The new bonds fit well into TVA's maturities profile and help us meet long-term corporate financing needs, while the low rate will reduce our financing costs."

Bank of America Merrill Lynch, Barclays Capital Inc., Mizuho Securities USA Inc., and Morgan Stanley & Co., LLC, were joint book-running managers for the transaction. The new bonds will mature onĀ Feb.1, 2027.

TVA's debt has risen in recent years as the utility has finished its last major nuclear power plant — the Unit 2 reactor at the Watts Bar Nuclear Plant — and begun building new natural gas-fired power plants to replace aging coal plants in Memphis and in Kentucky. TVA also is spending more than $1 billion on coal scrubbers at its Gallatin fossil plant near Nashville.

TVA expects to pay down on its debt and reduce its net borrowings over the next decade, TVA Chief Financial Officer John Thomas told investors last week.