TVA Secures Lease-Purchase Financing for Miss. Gas Plant

Aug 09, 2013, 12:31 ET from Tennessee Valley Authority

KNOXVILLE, Tenn., Aug. 9, 2013 /PRNewswire-USNewswire/ -- The Tennessee Valley Authority completed a lease-purchase transaction on Friday that provides $400 million in financing to acquire Southaven Combined Cycle Plant in Desoto County, Miss., supporting TVA's goal of national leadership in low-cost, cleaner energy.


The deal will give TVA sole ownership of the 774-megawatt natural gas facility near Memphis that TVA has operated under joint ownership since 2008 with Seven States Power Corp., a member-owned generation and transmission cooperative formed by local power companies served by TVA.

TVA will lease a 90 percent interest in Southaven to Southaven Combined Cycle Generation LLC, for which TVA will receive $400 million in proceeds. TVA will operate the plant under lease for 20 years, will continue to be responsible for all maintenance and fuel for the plant, and will receive all electricity generated from the plant to use in serving TVA customers. 

"We are pleased with the success of this financing, which drew broad investor support and establishes a new opportunity for programming with TVA's customers," Chief Financial Officer John Thomas said.

Seven States will use proceeds from TVA's acquisition of its stake in Southaven to develop load management programs benefiting local power companies and TVA. "These customer-driven programs will help TVA and local power companies continue to provide reliable, low-cost, affordable power to Tennessee Valley customers," said Jack Simmons, Seven States Power Corp. president and CEO.

The financing consists of a $40 million equity investment and $360 million from the sale of senior notes, both of which are secured by TVA's rental payments. The notes have been rated Aaa by Moody's Investors Service, AA by Fitch Ratings, and AA-minus by Standard & Poor's. The financing issued by Southaven Combined Cycle Generation LLC is not a direct obligation of TVA or the United States, and is not federally guaranteed. 

"This lease financing provides TVA with a cost-effective way to pay for this long-term capital project as we continue to move toward a more diversified generation portfolio," Thomas said. "It also offers us greater financial flexibility and helps diversify our investor base." 

The senior notes carry an interest rate of 3.846 percent and will mature on Aug. 15, 2033. Bank of America Merrill Lynch, Morgan Stanley and JPMorgan served as lead underwriters. TVA has used lease financing to fund its capital investment projects in the past, most recently with a lease-purchase financing of the John Sevier Combined Cycle Plant in 2012. TVA also uses traditional power bonds and other third-party financing arrangements, such as power pre-payments. 

TVA operates 11 high-efficiency, low-emission combined cycle gas units at five sites, including three units at Southaven, all of which TVA has built, leased or acquired since 2007.

The Tennessee Valley Authority is a corporate agency of the United States that provides electricity for business customers and local power distributors serving 9 million people in parts of seven southeastern states. TVA receives no taxpayer funding, deriving virtually all of its revenues from sales of electricity. In addition to operating and investing its revenues in its electric system, TVA provides flood control, navigation and land management for the Tennessee River system and assists local power companies and state and local governments with economic development and job creation.

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SOURCE Tennessee Valley Authority