The Tennessee Valley Authority will benefit by the historically low yields of government bonds to save $2.7 million a year on a portion of its debt.
TVA is resetting the rates on some of the $500 million of putable, automatic rate reset securities bonds the utility issued through 2029. The interest rate on those bonds will be reset from 3.36% to 2.216% on May 1, 2020.
“With interest rates dropping to historical lows, this gives us a chance to lower our costs while still giving bond holders an attractive rate for this market,” said Josh Carlon, director of corporate finance for TVA.
Bond holders have the option under the putable reset bonds to either redeem their bond holdings and accept the lower rate.
Although rates have dropped by more than a third from when they were last reset a year ago, TVA is still paying higher yields than the U.S. Treasury or other government bonds. TVA does not have the full faith and credit backing of the U.S. government, but bond rating agencies generally assume in their assessment of TVA that that federal utility has an implied backing of the U.S. government.
“This reset will continue to provide investors an attractive return on investment in this market environment, while saving TVA $2.7 million annually,” said TVA Treasurer and Chief Risk Officer Tammy Wilson.
TVA does not have any immediate plans for more refinancing any of its existing $22 billion of debt, Carlon said.