published Tuesday, August 9th, 2011

S&P downgrades TVA bond rating

The TVA headquarters building is located in downtown Chattanooga.
The TVA headquarters building is located in downtown Chattanooga.
Photo by Angela Lewis /Chattanooga Times Free Press.
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The Tennessee Valley Authority said today that a major bond rating service has downgraded its debt rating for the first time since the federal utility began issuing bonds in the early 1960s.

Standard & Poor’s rating service downgraded TVA’s rating from its highest level, AAA, to its next highest level, AA plus. The lower rating for TVA follows similar downgrades by S&P Friday night of U.S. treasuries and on Monday of government sponsored identities such as Fannie Mae and Freddie Mac. S&P said rising debt by the U.S. government raised the risk of a bond default by the federal government and its identities.

Despite the first-ever downgrade TVA debt, the chief financial officer for the Tennessee Valley Authority, John Thomas, said “the fundamental financial strength of TVA is unchanged.” Moody’s Investors Service Inc., recently reaffirmed its top rating for TVA and Fitch rating service has yet to alter its TVA bond rating.

“TVA’s top credit rating has been reaffirmed by one agency, unchanged by another and downgraded one notch to AA plus by the third major agency,” Thomas said. “Investors continue to seek the relative safety of U.S. Treasury and TVA investments, and the downgrade by one rating agency is not expected to have a material impact.”

Thomas said 94 percent of TVA’s $26 billion debt portfolio would not be impacted by interest rate changes within the next year.

“TVA has not seen a significant change in borrowing rates since the downgrade announcement,” he said.

The Tennessee Valley Authority, the nation’s largest government-owned utility, is an independent agency owned by the federal government. TVA has no guarantee of government support, but rating agencies have previously said TVA enjoys the implied backing of the U.S. government.

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