UPDATED: S&P downgrades TVA credit rating - WRCBtv.com | Chattanooga News, Weather & Sports

UPDATED: S&P downgrades TVA credit rating

CHATTANOOGA (WRCB) – Standard & Poor's Ratings Services says it has downgraded the long-term rating for the Tennessee Valley Authority.

The TVA's rating has dropped from AAA to AA+, with a negative outlook, in the wake of the ratings firm's downgrade of the federal government last Friday.

"The rating action reflects the interplay between our rating on the United States of America (AA+/Negative/A-1+) and TVA's 'AA-' stand-alone credit profile," Standard & Poor's stated in a release Tuesday. "Because the U.S. government rating is now 'AA+,' we have reduced the uplift TVA's 'AA-' stand-alone credit profile receives under our government-related entities criteria. Nevertheless, the continuing ratings uplift reflects our opinion that there is an extremely high likelihood that this corporation, which is wholly owned by the U.S. government, would receive extraordinary federal support in the event of financial distress."

"TVA's top credit rating has been reaffirmed by one agency, unchanged by another and downgraded one notch to AA plus by the third major agency.  TVA understands that as a government-owned enterprise, a change in the rating of U.S. government securities can impact our own," John Thomas, TVA's Chief Financial Officer said in a written statement to Channel 3. "However, the fundamental financial strength of TVA is unchanged. TVA receives no taxpayer dollars and its debt is not part of the national debt."

"The negative outlook reflects the outlook of the United States as TVA's sponsoring sovereign," said Standard & Poor's credit analyst Theodore Chapman.

"Investors continue to seek the relative safety of U.S. Treasury and TVA investments, and the downgrade by one rating agency is not expected to have a material impact," Thomas added.

As of March 31, 2011, the Knoxville, Tenn.-based authority had $26.2 billion of debt and other financing obligations outstanding, including statutory debt, energy prepayment obligations, lease-leaseback transactions, and other obligations. Management has recorded an estimated charge of $1.1 billion for expected cleanup and related costs attributable to the December 2008 Kingston coal ash spill in Tennessee.

"While we note that the stand-alone credit profile of TVA is not without challenges, both financial and operational, we do not currently believe these challenges measurably pressure the stand-alone credit profile during our outlook horizon of the next two years," Chapman added.

"TVA has not seen a significant change in borrowing rates since the downgrade announcement, and 94 percent of TVA's debt portfolio would not be impacted by interest rate changes within the next year," Thomas concludes.


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