published Wednesday, August 10th, 2011

TVA loses notch in S&P backwash

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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For the first time since the Tennessee Valley Authority began selling bonds nearly a half century ago, the credit strength of TVA has been cut.

Standard & Poor's downgraded its top rating for the nation's biggest government utility by one notch, lowering its AAA rating for TVA to a AA-plus grade.

TVA officials said Tuesday that the downgrade has yet to raise its borrowing costs, although the lower grade is expected eventually to force TVA to pay slightly higher interest rates on much of its $26.2 billion in debt.

TVA's ratings downgrade came three days after the rating agency made a similar cut in its assessment of U.S. Treasuries because of concerns over the rising federal debt and the near political gridlock last week in Congress before the debt ceiling was raised.

S&P credit analyst Theodore Chapman said "there is an extremely high likelihood" that TVA would receive extraordinary federal support in the event of financial distress.

"The negative outlook [for TVA] reflects the outlook of the United States as TVA's sponsoring sovereign," he said.

TVA Chief Financial Officer John Thomas said the interest rates paid on 94 percent of TVA's debt portfolio would not change in the next year.

"The fundamental financial strength of TVA is unchanged," he 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."

Moody's Investors Service Inc. recently reaffirmed its top rating for TVA, and Fitch rating service has yet to alter its TVA bond rating.

As a federally owned corporation, TVA has no guarantee of government support. But rating agencies previously have said TVA enjoys the implied backing of the U.S. government.

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enorsworthy said...

Chattanooga Times Free Press

I hate to be picky but John Thomas’ statement about the downgrading by S&P that it will “not affect the interest rates paid on 94 percent of TVA's debt portfolio would not change in the next year” is misleading even if true. The concern now is not what’s in TVA’s “debt portfolio” but how much the remaining 6 percent in dollars will be affected this coming year by the downgrade; how much will it cost extra to ratepayers in interest paid (approximately) by the remaining 6 percent of the “debt portfolio” due to the downgrade?

And to quote Thomas’ direct response to Dave Flessner, Times Free Press reporter, ‘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’ is a pure unadulterated TVAism. First, is the implied “safety of (the) U.S. Treasury” when the bond documents explicitly state that TVA bonds are not guaranteed by the U.S. government. Investors may buy U.S. treasuries that have nothing to do with the TVA.

Secondly, Thomas is further quoted, ‘the downgrade by one rating agency is not expected to have a material impact’. Then what will have an ‘impact’? Two downgrading rating agencies? Three? How? Why all the fuss if the “material impact” is not all that important?

Ernest Norsworthy http://norsworthyopinion.com

http://norsworthyopinion.com/TVA_simplicity.aspx

P.S.

Wonder where TVA’s quarterly report is to the SEC?

August 10, 2011 at 12:59 p.m.
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