tva logoTennessee Valley Authority

TVA Secures $1 Billion Financing Through Lease-Purchase Of John Sevier Combined Cycle Plant

January 17, 2012

KNOXVILLE, Tenn. - The Tennessee Valley Authority completed a lease-purchase transaction on Tuesday that provides $1 billion in financing to support TVA’s vision of national leadership in low-cost, cleaner energy by 2020.

TVA will lease the John Sevier Combined Cycle Plant in Rogersville, Tenn., to John Sevier Combined Cycle Generation LLC, a limited liability company, for which it will receive $1 billion in proceeds. TVA will complete the 880-megawatt natural gas-fired plant, and then lease it back over 30 years. The plant is scheduled to begin commercial operation this summer.

“The use of lease-purchase financing gives us greater financial flexibility as we pursue a number of significant capital projects to realize our vision of providing cleaner energy,” Chief Financial Officer John Thomas said. “As a supplement to traditional bond financing, the use of lease financing can help hold down costs and rates for our customers.”

Thomas described the transaction as very similar to leasing a car.

“We will operate the plant for 30 years under this lease. And at the end of the term, the plant ownership will return to us,” he said. “From an operational standpoint, it is pretty seamless. TVA will maintain the facility, purchase fuel for it and take all the power it generates.”

The financing for the lease purchase consists of a $100 million equity investment and a $900 million bond issue, both of which are secured by TVA’s rental payments. The bonds are issued by the limited liability company and are rated Aaa by Moody’s Investors Service, AA by Fitch Ratings, and AA-minus by Standard & Poor’s. The bonds are not obligations of TVA or the United States, and are not federally guaranteed.

The bonds have a coupon rate of 4.626 percent and will mature on January 15, 2042. Morgan Stanley, Bank of America Merrill Lynch and Barclays Capital served as lead underwriters. TVA has used leasing to fund its capital investment projects in the past, along with traditional power bonds, and other third-party financing arrangements such as power pre-payments.

“Leasing is common in the utility industry, and such secured financing can provide TVA with a cost-effective way to pay for long-term capital projects. TVA’s ability to effectively use such financing reflects investor confidence in TVA, our strategy and the projects that are needed to realize our vision,” Thomas said.

The Tennessee Valley Authority, a corporation owned by the U.S. government, provides electricity for business customers and distribution utilities that serve 9 million people in parts of seven southeastern states at prices below the national average. TVA, which receives no taxpayer money and makes no profits, also provides flood control, navigation and land management for the Tennessee River system and assists utilities and state and local governments with economic development.

Media Contact

Duncan Mansfield, Knoxville, (865) 632-4660
TVA Media Relations, Knoxville, (865) 632-6000

TVA Newsroom

Investor Contact

Ann Storberg, Knoxville, (865) 632-4425
TVA Investor Relations, Knoxville, (888) 882-4975

www.tva.com/finance

           
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