TVA gets $1 billion under leaseback deal

photo The TVA headquarters building is located in downtown Chattanooga.

The Tennessee Valley Authority announced today that it will receive $1 billion from a private investment firm which will buy and then lease back to TVA a new combined cycle gas plant near Rogersville, Tenn.

The arrangement will help limit TVA borrowing needed to complete the 880-megawatt gas plant being built at the site of the soon-to-be idled John Sevier coal plant.

TVA will lease the new gas plant, scheduled for completion this spring, to a limited liability company known as John Sevier Combined Cycle Generation LLC. The 30-year arrangement is the largest yet of TVA's leaseback deals for gas-fired and combustion turbine plants.

"The use of lease-purchase financing gives us greater financial flexibility as we pursue a number of significant capital projects to realize our vision of providing cleaner energy," TVA Chief Financial Officer John Thomas said in a statement today. "As a supplement to traditional bond financing, the use of lease financing can help hold down costs and rates for our customers."

TVA has more than $26 billion of debt or long-term debt-like obligations. The federal utility is restricted by Congress from carrying more than $30 billion of debt.

TVA is spending $2.5 billion to complete a second reactor at its Watts Bar Nuclear Plant and is planning to spend another $4.9 billion to finish the first reactor of its incomplete Bellefonte Nuclear Plant in Hollywood, Ala., , within the next decade.

Thomas described the leaseback transaction at the John Sevier plant as similar to leasing a car.

"We will operate the plant for 30 years under this lease," Thomas said. "And at the end of the term, the plant ownership will return to us.

"From an operational standpoint, it is pretty seamless. TVA will maintain the facility, purchase fuel for it and take all the power it generates."

The financing for the lease purchase consists of a $100 million equity investment and a $900 million bond issue, both of which are secured by TVA's rental payments. The bonds are issued by the limited liability company and are rated Aaa by Moody's Investors Service, AA by Fitch Ratings, and AA-minus by Standard & Poor's. The bonds are not obligations of TVA., Thomas said.

The bonds have a coupon rate of 4.626 percent and will mature on January 15, 2042. Morgan Stanley, Bank of America Merrill Lynch and Barclays Capital served as lead underwriters.

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