Moody’s affirms TVA’s rating; outlook remains stable

Moody’s Investors Service has affirmed the Aaa senior unsecured ratings of the Tennessee Valley Authority (TVA) with a stable rating outlook, but noted that TVA faces a number of challenges.

The challenges include having to undergo major capital expenditures in the near term during a weak electric market while simultaneously having to cut payroll, Moody’s said.

As a federal utility TVA enjoys many inherent strengths, such as the TVA board’s authority to set electric rates and long-term contracts with creditworthy counterparties, Moody’s said Aug. 13.

“These attributes, combined with TVA’s size, scale, and economic importance within the Tennessee Valley, translate into a more predictable and stable financial profile relative to all other public power and investor owned utilities,” Moody’s said.

TVA, however, is not without challenges. The company has experienced a decline in electric demand, primarily due to the decline in electricity sales to a single, large industrial customer, and expects demand growth to be low.

In response, TVA has undertaken a cost reduction initiative with a goal of reducing operating and maintenance costs by $500m by fiscal year 2015 in part by reducing employee headcount, the ratings agency noted.

TVA has been doing a voluntary buyout and other measures to reduce its headcount.

“As such, management will be challenged with managing company morale and maintaining strong customer service in the cost-cutting environment. Moreover, TVA’s near-term capital expenditures are expected to exceed recent historical levels and require external financing as TVA looks to shut down coal-fired generation and replace that capacity with new nuclear and natural gas fired generation,” Moody’s said.

TVA’s liquidity profile is supported by $2.5bn of commercial credit facilities; the bank credit facilities, however, contain rating triggers that impact TVA’s financial flexibility, Moody’s said.

Specifically, new money borrowings are at the discretion of banks if TVA’s senior unsecured rating falls below A3 and an event of default would occur should TVA’s senior unsecured rating fall below Baa2. An event of default under the facilities would not trigger events of default on TVA’s power bonds and notes.

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.