In its first 30-year debt issue in a decade, TVA has priced $500 million of long-term bonds with an interest rate of 4.25% -- the second lowest ever for a TVA bond 30 years or longer.
Despite higher interest rates this year due to the tightening of monetary policies by the Federal Reserve Board, TVA Treasurer Tammy Wilson said long-term rates have remained favorable in historic terms and the federal utility was able to capitalize on a recent dip in rates for long-term government bonds.
"We were pleased to see a window of stability develop in recent weeks, and an opportunity for TVA to take advantage of still historically low long-term rates," Wilson, also the utility's chief risk officer, said in a statement after the sale of the bonds.
TVA has cut its debt by $5 billion over the past five years from $25.5 billion at the end of fiscal 2017 to $20.5 billion in its most recent financial report.
But after cutting both capital and operating spending for nearly a decade, TVA is reversing course and is expected to boost its debt again to build new natural gas plants, small modular reactors and other generation and transmission additions, in part, to replace its aging coal-fired power plants. By fiscal 2025, TVA's debt is projected to rise to $23.4 billion, or nearly $3 billion above the current level, TVA Chief Financial Officer John Thomas told TVA directors last month.
TVA's fiscal 2023 budget boosts capital spending by 25% over the current year to $3.5 billion -- the highest capital spending for TVA in more than a decade. TVA projects it will spend even more in the next couple of years on capital projects, raising TVA's capital budget to $4.1 billion in fiscal 2025 and boosting TVA's overall debt level.
The bond rating agency Moody's Investors Service gave the new 30-year TVA bonds a top AAA rating with a stable outlook, based on TVA's strong cash flow combined with its territorial protection and the implied backing of the federal government for its debt. Although TVA is an independent federal agency, it enjoys protection from competition and regulatory control over its rates, Moody's said in its bond rating.
"The stable rating outlook reflects our expectation that TVA will continue to generate strong cash flows while maintaining safe and sound operating performance over at least the near-term," Scott Solomon, vice president and senior credit officer for Moody's, said in his assessment of TVA's financial standing.
Solomon noted that TVA will require new borrowing to pay for more natural gas plants and other replacement power for the coal plants it plans to shut down by 2035 and the utility still has an underfunded pension plant. But Moody's noted that TVA enjoys "a high probability of extraordinary support" from the federal government.
TVA sold the 30-year bonds to help maintain capital for the increased capital spending on long-term projects, Wilson said.
"With one of the nation's largest electric power systems, TVA is a natural issuer of longer-maturity bonds, and the success of this transaction shows the confidence investors have in TVA and the strength of the public power model," Wilson said a statement. "The new 30-year bond fits well in TVA's debt profile, which has a low number of bonds maturing in the early 2050s. TVA debt levels remain at the lowest levels in over 30 years, and the new bonds will help TVA maintain stable interest costs for decades to come."
Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340. Follow on Twitter at @Dflessner1