TVA launches $500M green bond offering; Fitch assigns it AAA but says outlook is negative

Image by Nattanan Kanchanaprat from Pixabay

The Tennessee Valley Authority (TVA) announced and priced a $500 million offering of 10-year maturity green bonds today, its first offering of a sustainability-focused financial instrument.

The utility said the bonds will fund ongoing capital investments that build on TVA’s ESG program as well as help it meet its decarbonization goals.

“TVA’s financial position has strengthened over the past decade, and we are continuing our disciplined financial approach as we invest in the energy system of the future,” said John Thomas, TVA Chief Financial & Strategy Officer.  “Low cost financing for our strategic capital investments will contribute to keeping energy rates as low as feasible even as we make progress toward our net-zero carbon aspirational goal.”

The bonds carry a coupon interest rate of 1.5%, which sets a record for the lowest rate ever achieved by TVA on a 10-year financing. 

Proceeds from the sale will be used to fund TVA’s upcoming capital investments for increased renewable energy generation, energy storage, transmission system upgrades and development of advanced clean energy technologies. A potential TVA solar project in northern Alabama and a potential TVA energy storage project in eastern Tennessee – both still undergoing detailed environmental reviews – are two possible uses of the funding. As part of the green bond format, TVA expects to report on the allocations of net proceeds of the bonds annually until proceeds are fully allocated, it said.

The green bond offering drew over $2 billion in initial orders from a variety of investors, including money managers, state governments, insurance companies, and others.  Bank of America Securities served as Green Structuring Agent for the transaction, and joint book-running manager.  Barclays, Morgan Stanley, RBC Capital Markets, and TD Securities, also served as joint book-running managers for the transaction.

The new bonds will mature on Sept. 15, 2031, and are not subject to redemption prior to maturity.

Fitch Rating

Fitch assigned the bond a AAA rating and said the outlook was negative. The AAA rating is based on the fact that TVA is a government agency and Fitch’s expectation that repayment of these power bonds would ultimately receive federal support in the event of TVA’s fiscal distress.

The Negative Outlook on the global power bonds is based on the Negative Outlook Fitch maintains on the U.S. government sovereign rating.

The Tennessee Valley Authority is a corporate agency of the United States that provides electricity for business customers and local power companies serving nearly 10 million people in parts of seven southeastern states.

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Jennifer Runyon is a Content Director at Clarion Energy, writing, editing and posting content on POWERGRID International and planning conference sessions for DISTRIBUTECH's live and virtual events. She as the conference advisory committee chair for DISTRIBUTECH International. You can reach her at Jennifer.Runyon@ClarionEvents.com.

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