TVA Issues 50-Year Bonds At Record Low Interest Rate
September 17, 2010
KNOXVILLE, Tenn. — The Tennessee Valley Authority priced $1 billion of 50-year global power bonds Thursday that carry an interest rate of 4.625 percent, representing TVA's lowest-ever rate for a bond with a maturity of 30 years or longer.
TVA chose the 50-year maturity because of strong demand for long-dated, fixed-income investments, which has made the cost of extending the maturity relatively inexpensive for bond issuers. The incremental cost for TVA to issue 50-year bonds versus 30-year bonds was approximately one-eighth of one percentage point. Insurance companies, money managers and other investors with a need for long-term investments participated in the offering. TVA initially announced a transaction of $500 million but increased the size because of strong response.
“The low rate achieved on this bond offering will lock in lower expense for TVA and our customers,” said John Thomas, TVA chief financial officer. “We had strong response from investors and were able to take advantage of low interest rates and an accommodative market to set a financing record.”
Bank of America, Merrill Lynch and Morgan Stanley were joint book-running managers for the offering. Proceeds from the sale will be used by TVA to refinance existing debt and for other power system purposes.
TVA receives no funding from taxpayers and pays its own way with revenues from power sales and power program financings. TVA looks for a combination of favorable market conditions and strong investor demand in making the decision to issue long-term bonds to meet its funding needs.
“Fifty-year bonds are relatively rare,” said John Hoskins, TVA senior vice president and treasurer. “Investors are not always willing to buy such long maturities, particularly with interest rates at historic lows. The size and success of the 50-year offering is a positive statement about TVA’s standing in the financial markets.”
TVA’s rated power bonds are rated “Aaa” by Moody’s Investors Service and “AAA” by Fitch Ratings and Standard and Poor’s. TVA has applied for ratings for the new 50-year power bonds from each agency. The new bonds mature on Sept. 15, 2060, and are not subject to redemption prior to maturity. Interest will be paid semi-annually each March 15 and Sept. 15.
Application has been made to list the bonds on the New York Stock Exchange. The bonds will also be issued, maintained and transferred through the book-entry system of the Federal Reserve Banks. Transactions may be cleared and settled by international participants through Clearstream and Euroclear. The bonds can be identified by the CUSIP number 880591EJ7.
Scott Brooks, Knoxville, (865) 632-8031
TVA Media Relations, Knoxville, (865) 632-6000