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5.
Debt
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Borrowing
authority
The TVA Act authorizes TVA to issue bonds, notes and other evidences
of indebtedness up to a total of $30 billion outstanding at any one
time. TVA must meet certain financial tests that are contained in the
TVA Act and the Basic TVA Power Bond Resolution. Debt service on these
obligations, which is payable solely from TVA’s net power proceeds,
has precedence over the payment to the U.S. Treasury described in note
4.
Short-term
debt
The weighted average rates applicable to short-term debt outstanding
in the public market as of September 30, 2000 and 1999, were 6.53 percent
and 5.30 percent, respectively. During 2000, 1999 and 1998 the maximum
outstanding balances of short-term borrowings held by the public were
(in millions) $3,943, $4,701 and $2,914, respectively, and the average
amounts (and weighted average interest rates) of such borrowings were
approximately (in millions) $2,628 (5.94 percent), $1,945 (5.01 percent)
and $2,234 (5.58 percent), respectively.
Put
and call options
Bond issues of $7.3 billion held by the public are redeemable in whole
or in part, at TVA’s option, on call dates ranging from the present
to July 2020 at call prices ranging from 100 percent to 106.7 percent
of the principal amount. Additionally, TVA has bond issues of $3.1 billion
held by the public that are redeemable in whole or in part at the option
of the respective bondholders as follows. One bond issue totaling $500
million, which matures in July 2045, is redeemable in 2001 by the bondholders.
A second issue totaling $121 million, which matures in April 2036, is
redeemable in 2006 at the option of the bondholders. A third issue totaling
$1.5 billion, which matures in April 2036, is redeemable in 2006 at
the option of the bondholders, and a fourth issue totaling $1.0 billion,
which matures in May 2012, is redeemable in 2002 at the option of the
bondholders. Each of these four issues is reported in the debt schedule
with maturity dates corresponding to the earliest redeemable dates.
Six additional issues totaling $500 million, with maturity dates ranging
from 2005 to 2030, include a provision for a right of redemption upon
the death of a beneficial owner in certain specified circumstances.
Additionally, TVA
has two issues of Putable Automatic Rate Reset Securities (PARRS) outstanding.
The bonds permit TVA, after a fixed-rate period of five years, to reset
the coupon rate downward under certain market conditions. Investors
have the option to redeem the bonds at par if and when the interest
rate is reset. One PARRS issue totals $575 million, matures in June
2028 and has its first potential reset date in June 2003. The second
issue of PARRS totals $525 million, matures in May 2029 and has its
first potential reset date in May 2004.
Foreign
currency transactions and interest rate swap
During 1996 TVA entered into a currency swap contract as a hedge for
a foreign currency denominated debt transaction. TVA issued DM1.5 billion
of bonds and swapped the cash flows for those of a U.S. dollar obligation
of $1 billion. TVA also entered into a currency swap contract during
1999 as a hedge for a Sterling denominated debt transaction where TVA
issued £200 million of bonds in that transaction. Any gains or
losses on the debt instruments due to the foreign currency transactions
are offset by losses or gains on the swap contracts. At September 30,
2000 and 1999, the currency transactions resulted in net deferred gains
of $360 million and $182 million, respectively, which are included in
the account “unamortized discount and other adjustments.”
The offsetting losses on the swap contracts are recorded as a deferred
liability. If any loss/(gain) were to be incurred as a result of the
early termination of a swap contract, any resulting charge/(income)
would be amortized over the remaining life of the bond as a component
of interest expense.
Additionally, in
1997 TVA issued $300 million of inflation-indexed accreting principal
bonds. The 10-year bonds have a fixed coupon rate that is paid on the
inflation-adjusted principal amount. TVA hedged its inflation exposure
under the securities through a 10-year fixed interest rate swap agreement.
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