The Tennessee Valley Authority is borrowing another $1 billion this week at the lowest cost ever for long-term debt.
The federal utility priced new 10-year bonds this week at 1.875 percent. Monday's bond sale was the first for any U.S. agency or corporate borrower to price a 10-year bond with a yield below 2 percent, TVA spokesman Duncan Mansfield said.
TVA will cut its interest charges by more than half compared to the 3.875 percent rate the utility paid when it last issued 10-year bonds in February 2011. Compared with 18 months ago, TVA could save more than $100 million in interest expenses over the next decade.
TVA will use the proceeds to pay off higher-priced debt and to fund its ongoing construction of Watts Bar Unit 2.
"Achieving a record low interest rate allows us to keep power rates low while we continue to deliver reliable power to our customers, and supports our vision to be a leading provider of lower-cost, cleaner energy by 2020," TVA Chief Financial Officer John Thomas said in a statement Tuesday.
TVA attracted both domestic and foreign bond buyers eager for the relative safety and security of U.S. government debt. With European sovereign debt in question and the U.S. central bank trying to push down long-term borrowing costs through its monetary policy, interest yields on government debt are falling to record lows.
Although TVA is an independent, self-funding federal agency, it enjoys the implied backing of the federal treasury. On Monday, the Fitch Rating agency reaffirmed its AAA rating for TVA's debt, which totaled $23.9 billion at the end of fiscal 2011.
"The "AAA" rating reflects TVA's status as a wholly owned corporation of the U.S. government," Fitch analyst Bhala Mehendale said in a three-page analysis of TVA. "Fitch takes into account its assessment the likelihood and degree of government support for TVA and similarly rated government-sponsored entities."
The bond sale was managed by Bank of America Merrill Lynch, Morgan Stanley and RBS.
The new bonds mature on Aug. 15, 2022, and are not subject to redemption prior to maturity.
Contact Dave Flessner at email@example.com or at 757-6340