America's biggest government-owned utility is taking advantage of historically low interest rates to refinance some of its $22 billion of debt and save $15 million a year in interest expenses.
The Tennessee Valley Authority priced $1 billion of refinancing bonds Wednesday at the lowest rate in TVA history. The new 5-year maturity global power bonds carry an interest rate of 0.75% and replace $1 billion of bonds that matured in March.
"We were patient and waited for the markets to settle down from the initial panic related to the pandemic, and it turned out to be a good decision," said Tammy Wilson, TVA's treasurer and chief risk officer. "It is a historic opportunity to borrow money for less than 1%, and I am proud of what we accomplished."
TVA is a self-funded federal corporation so any savings directly benefits TVA and the 10 million people it serves in parts of seven southeastern states. Wilson said the offering drew over $4 billion in interest from a variety of investor bases, including central banks, money managers, state governments and insurance companies.
(READ MORE: TVA commercial power sales drop as coronavirus shutdowns depress regional economy)
Government bond yields have sunk to all-time lows as the Federal Reserve Board and other central bankers have extended credit and pushed down rates to help prop up the global economy hurt by the shutdown of so many businesses in response to the coronavirus pandemic.
Ten-year U.S. Treasury yields, the benchmark for global financing, fell below 1% this week after the Federal Reserve made an emergency cut to its target rate on Sunday. It's the lowest rate ever, according to records going back to 1871 compiled by Yale University economist Robert Shiller.
Although TVA bonds are not backed by the U.S. government, bond rating agencies indicate that TVA enjoys the implied backing of the government and TVA's board has the authority to adjust electricity rates in TVA's service territory without outside regulatory approval.
"TVA has been in operation for 87 years this month – through multiple recessions and periods of uncertainty, and the TVA credit tends to shine in difficult times," Wilson said. "The strong reception to today's offering demonstrates confidence in TVA and the value we provide the investors that have supported our funding program over the years.
Bank of America Merrill Lynch, Barclays Capital, Morgan Stanley, and TD Securities are joint book-running managers for the transaction. TVA's offering drew over $4 billion in interest and others. The new bonds will mature on May 15, 2025, and are not subject to redemption prior to maturity. Interest will be paid semi-annually each November 15 and May 15.