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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 cash flow and earnings 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.
Debt
outstanding
Debt
outstanding at September 30, 1999, and 1998, consisted of the following:
Short-term
debt
The
weighted average rates applicable to short-term debt outstanding in
the public market as of September 30, 1999, and 1998, were 5.30 percent
and 5.54 percent, respectively. During 1999, 1998, and 1997, the maximum
outstanding balance of short-term borrowings held by the public was
(in millions) $4,701, $2,914, and $3,962, respectively, and the average
amounts (and weighted average interest rates) of such borrowings were
approximately (in millions), $1,945 (5.01 percent), $2,234 (5.58 percent),
and $2,743 (5.47 percent), respectively.
Put
and call options
Bond
issues of $9.0 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 $2.1 billion
held by the public that are redeemable in whole or in part at the option
of the respective bondholders. 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, and a third issue
totaling $1.5 billion, which matures in April 2036, is redeemable in
2006 at the option of the bondholders. Each of these three issues is
reported in the debt schedule with maturity dates corresponding to the
earliest redeemable dates. A fourth issue totaling $250 million, which
matures in January 2018, includes 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 and 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, 1999, and 1998, the
currency transactions resulted in net deferred gains of $182 million
and $102 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 principle
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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