BRADENTON, Fla. - A financial advisory firm's recommendation that the Tennessee Valley Authority not be divested from the federal government is credit positive, said Moody's Investors Service.
New York-based financial advisory and asset management firm Lazard Freres & Co. LLC made the recommendation in a report commissioned by the TVA in response to the Obama Administration's suggestion on March 4 that federal ties with the authority be severed or reduced.
"Moody's believes that the conclusion reached by an independent third party in a report addressing the Tennessee Valley Authority's financial situation is credit positive as the findings reduce the likelihood for a reduction or reconfiguration of federal ties with TVA," the rater said June 5.
Lazard said there are a number of factors supporting its conclusion, including the TVA's "current strong financial position, ability to self-fund its construction program and anticipated improvements in cost structure."
The firm also said that TVA's financing "does not appear to be a true draw on the government balance sheet as TVA receives no current appropriations and its debt is not guaranteed by the federal government."
Additionally, a divestiture would be complex and likely would require a costly, multi-year process, Lazard said.
"While Lazard's opinion is just one facet of the Obama Administration's investigation into reducing federal ties, we believe it strengthens the argument of maintaining TVA's ownership at the status quo," said Moody's.
The rating agency said it continues to view a reduction or reconfiguration of federal ties, should it occur, as a credit negative for TVA as it would require revoking the TVA Act of 1933 and eliminating the possibility of government support, which is a key consideration that supports TVA's Aaa rating.
In a statement, the TVA said it is pleased the Lazard report supports TVA's financial and operational plan.
"The review also validated that TVA provides substantial economic and other benefits for the region," the authority said.
Based in Knoxville, the Tennessee Valley Authority provides power to most of Tennessee, and parts of Alabama, Georgia, Kentucky, Mississippi, North Carolina, and Virginia.
The authority is a self-financing government corporation whose current capital investment plan is more than $25 billion over the next 10 years. The agency has a statutory cap of $30 billion on debt.
TVA had about $26.3 billion of outstanding debt, leaseback obligations, and prepaid power obligations as of Dec 31, 2013.