In its first major issue of 10-year bonds since 2017, the Tennessee Valley Authority sold $1 billion of new global power bonds Thursday with an interest rate of 4.375%.
TVA Senior Vice President Tom Rice said the rate was below what TVA had initially planned and will help fund part of TVA’s plans for $15 billion of capital investments in the next three years to maintain and expand the utility’s power output.
“We are seeing sustained growth across our seven-state region, and this offering reflects the need to continue to invest in additional, clean generation to meet that need,” Rice said in a statement.
(READ MORE: TVA power demand grows as region electrifies)
Rice said the bonds attracted interest from domestic and global institutions, including official institutions, governments, pension funds, money managers and insurance companies. Although TVA bonds are not guaranteed by the U.S. government, as a federal corporation, TVA’s debt carries the implied backing of the federal government, and the bond rating service Fitch Ratings gave the TVA bonds a favorable AA+ rating.
“Fitch believes extraordinary support from the U.S. government to TVA, a corporate agency and instrumentality of the United States created by federal legislation, would be very likely if needed,” Fitch said in its assessment of TVA.
Last year, Fitch downgraded TVA’s bond rating from its top AAA rating after the rating service downgraded the credit rating of the federal government overall because of the growing federal debt. TVA’s borrowing rates mirror U.S. treasury rates, and TVA benefited by the recent decline in 10-year rates in the bond market.
TVA’s debt fell by more than 20% from its peak nearly two decades ago to reach a 30-year low of $18.8 billion in 2022, but its debt is again increasing as the utility builds new natural plants, upgrades its existing fleet and expands its transmission network to meet a growing demand for electricity. TVA is also studying plans to build up to 20 small modular reactors and has already budgeted $200 million to develop a pilot project in Oak Ridge.
(READ MORE: TVA neared debt limit in 2010)
TVA has a Congressional-imposed debt ceiling of $30 billion, which has not been raised since 1979. TVA noted in a recent financial report that other public power entities with statutory debt limits and growing power demand, such as the Bonneville Power Administration, have had their statutory borrowing authority raised.
— Compiled by Dave Flessner