Standard & Poor's on Tuesday lowered a portion of the Tennessee Valley Authority's debt to AA-minus from AA-plus because the authority is less likely to receive support from the federal government in times of distress, the rating agency said.
The action affects $1.2 billion of lease-back obligations for projects in Tennessee and Mississippi.
The outlook is stable, "given the fact that a further downgrade of the U.S. would not lower the rating on the leases," said Standard & Poor's analyst Theodore Chapman.
"The downgrade reflects the application of our government-related enterprise criteria to the leases," according to Chapman.
"We view the credit quality of the debt associated with the leases as aligned with TVA's stand-alone credit profile of AA-minus because the leases were entered into based on TVA's general creditworthiness," he said.
The lease-back obligations are "less likely to receive extraordinary financial support from the federal government in periods of distress compared to debt issued directly by TVA and that is denominated in TVA's name as government-sponsored enterprise debt," Chapman said.
Debt service associated with the lease obligations is paid as an operating expense of the Tennessee Valley Authority's electric system, according to Standard & Poor's.
The lease-back debt does not count toward the authority's debt cap of $30 billion. It has $26 billion of outstanding debt.
The Tennessee Valley Authority's non-lease debt is rated AA-plus with a negative outlook, which matches the rating of the United States and corresponds to the authority's linkage to the federal government as a government-sponsored enterprise.
Standard & Poor's in August lowered the United States government's rating to AA-plus with a negative outlook from AAA.
