Moody's Ratings downgraded the senior unsecured ratings of the Tennessee Valley Authority to Aa1 from Aaa, citing its earlier downgrade of the government of the United States.
Moody's now has a stable outlook on the rating.
Moody's also downgraded to Aa1 from Aaa the senior secured ratings of John Sevier Combined Cycle Generation LLC, Southaven Combined Cycle Generation LLC, and Johnsonville Aeroderivative Combustion Turbine Generation LLC, which issue senior secured lease debt rated at the level of TVA due to the authority's absolute and unconditional obligation to make lease payments. The outlooks are stable.
TVA had about $21 billion in debt as of March 31. Including debt from the other three entities, the downgrade affects $23 billion.
The U.S. government owns TVA and the rating "incorporates a high probability of extraordinary support from the government of the United States of America, if needed," Moody's said.
Additionally, Moody's rating on the authority stems from legislation that protects it from competition, the TVA board's authority to set electric rates and TVA's long-term contractual arrangements with creditworthy counterparties. Moody's also cited TVA's large size, strong cash flow and balance sheet, competitive rate profile and economic importance in the Tennessee Valley.
TVA's fuel rates adjust monthly according to a formula and the board has been willing to increase the base rate as needed, Moody's noted.
The authority has an annual debt service coverage ratio (on an interest only basis) of about 4x.
"Impacts on U.S. Treasury markets have been fairly muted. This action from Moody's was anticipated and we do not expect a significant impact on TVA," said Scott Fiedler, TVA Media Relations senior media specialist.
"The change in TVA ratings is tied to Moody's action on the U.S. rating and not a reflection on any TVA specific items or of TVA's underlying financial health, which remains very strong," Fiedler said.
TVA is primarily a wholesaler of power, selling to 153 local power companies in Tennessee, Alabama, Mississippi, Kentucky, Georgia, North Carolina and Virginia.
Created by Congress in 1933, the Tennessee Valley Authority provides affordable, reliable and resilient power for homes and businesses; manages the Tennessee River system for flood control, environmental sustainability, power production, recreation and economic development; and partners with local and state leaders to recruit industry and help the region prosper, according to its website.
S&P Global Ratings and Fitch Ratings rate TVA AA-plus. The rating, if any, of KBRA couldn't be immediately determined.
