published Thursday, January 12th, 2012

TVA nears fund deal for plant

An investment group plans to head to Wall Street next week to price $900 million of bonds to pay the Tennessee Valley Authority for a combined-cycle gas plant being built near Rogersville, Tenn., officials said Wednesday.

John Sevier Combined Cycle Generation LLC, an investment group organized to effectively buy and lease back a new gas plant at TVA's John Sevier plant in Northeast Tennessee, will make a payment to TVA once the plant is completed by May, according to bond rating services. The investment group then will lease the plant back to TVA to operate and repay the bonds over the next 30 years.

TVA spokesman Duncan Mansfield said he could not discuss any details of the financial arrangement because of the pending bond issue. But the Fitch bond rating service, which assigned a favorable "AA" rating to the John Sevier bonds, said TVA has agreed to make lease payments on the plant regardless of whether the plant operates.

TVA has solicited such leaseback offers for two plants under construction -- the John Sevier gas plant and the Unit 2 reactor at the Watts Bar Nuclear Plant. TVA is eager to raise money for its new plants up front to avoid hitting its $30 billion debt cap imposed by Congress.

The federal utility now has more than $26 billion of debt and long-term debt-like obligations. TVA is looking for outside money to help pay for the $4.5 billion expense of finishing one of its reactors at its Bellefonte Nuclear Plant site in Hollywood, Ala.

The bonds being issued for the John Sevier plant deal are being underwritten by Morgan Stanley, Barclays Capital and Bank of America Merrill Lynch.

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