IS TVA HEADED FOR THE BIG CRASH? - Debt and the Bellefonte Financing Scheme Creates Bankruptcy Risk

Will the Bellefonte financing scheme bring down the TVA?  (ARTICLE UPDATED: Jan 30, 2012)

Business Insider lists the TVA at #6 in their list at high risk for bankruptcy. The house of cards nearing a tumble?  http://www.businessinsider.com/the-next-17-big-companies-that-are-at-risk-of-bankruptcy-2012-1#tennessee-valley-authority-6  Business Insider rates the  "Financial distress (failure) probability of the TVA at 11.82%."

"One other way TVA has looked to raise money is by selling off facilities, and leasing them back. Thomas (John Thomas CFO, TVA) argues that’s not as cheap as using bonds, and he says customers ultimately bear the added expense." http://www.keyumc.org/2011/11/tva-could-replace-30b-debt-limit-with-coverage-ratio/ 

A TVA spokesman has stated said he could not provide details about John Sevier Combined Cycle Generation LLC because of a nondisclosure agreement. Chief Financial Officer John Thomas said of the LLC, "it is a group made up of large, institutional investment companies." John Sevier Combined Cycle Generation LLC is a corporation registered in Delaware. The sale of the combined cycle gas plant was complete in September of 2011 in secret. There was no mention of such a transaction at the November 2011 TVA Board meeting in Starkville Ms. (Bank of America Merrill Lynch, Barclay's Capital and Morgan Stanley were the joint book-running managers for the sale and other TVA bond sales.) http://www.ubs.wallst.com/ubs/mkt_story.asp?docKey=1329-L1E8CAE2G-1&first=0


 In part from KnoxvilleBiz.com- TVA plans more lease purchase deals; who will pay? Ratepayers-"...the financing cost for TVA for the $1 billion amounts to about 5 percent, with TVA paying $10 million a year for 30 years, for a total of $300 million, for which it would immediately get the use of the $1 billion."

Specific details of the sale are secret due to the signing of a non-disclosure agreement. Details such as the terms of the contract and what determines a default are secret. This is a slap in the face to accountable, open government and what appears to be a violation of the Federal Sunshine Act.

The Federal Sunshine Act states: "§ 552b. Open meetings

(a)For purposes of this section—

(1)the term “agency” means any agency, as defined in section 552(e) ^[1] of this title, headed by a collegial body composed of two or more individual members, a majority of whom are appointed to such position by the President with the advice and consent of the Senate, and any subdivision thereof authorized to act on behalf of the agency..."  Note: "any subdivision thereof authorized to act on behalf of the agency..." Currently there is no committee meeting of the TVA open to the public although various committees act in behalf of the TVA..

More lease projects planned costing the ratepayers- "TVA also plans to do a lease-purchase deal with its Watts Bar Unit 2 nuclear reactor and Thomas said that will probably occur late this year, which also is when the project is expected to be completed. TVA plans to sell the John Sevier plant plus the Watts Bar reactor to help fund completion of the $4.9 billion Bellefonte nuclear reactor in Northern Alabama." http://www.knoxnews.com/news/2012/jan/22/tva-plans-more-lease-purchase-deals-like-john/


From The Chattanooga Times Fee Press,  Dec 1, 2011 article by Dave Flessner concerning TVA's lease purchase plans. "S&P credit analyst Theodore Chapman said the risk on TVA's $1.2 billion of outstanding long-term leases on buildings and generation facilities is even greater than TVA bonds.
"We believe that the debt service associated with these leases, which are paid as operating expenses of TVA's electric system, is less likely to receive extraordinary financial support from the federal government in periods of distress compared to debt issued directly by TVA and that is denominated in TVA's name as government-sponsored enterprise debt," S&P said in its analysis."  http://timesfreepress.com/news/2011/dec/01/debt-crisis-casts-doubt-on-tvas-long-term/


Bonds in this deal not protected by implicit federal government support: From "Market Watch-Wall Street Journal, Jan 10, 2012: Fitch Ratings has assigned a rating of 'AA' to the John Sevier Combined Cycle Generation LLC (LLC or the Lessor) lease note obligations... The notes are secured by basic lease rent payments to be made by theTennessee Valley Authority (TVA) whose obligation to make rent payments is absolute and unconditional. Noteholders are also granted a first mortgage interest in the assets under the lease. The rating of the LLC notes reflects TVA's absolute and unconditional obligation to make basic rent payments. However, Fitch does not believe that the implicit federal government support enjoyed by the global power bonds, (rated 'AAA', with a Negative Outlook by Fitch) extends to TVA's lease rent obligations. "  http://www.marketwatch.com/story/fitch-rates-john-sevier-combined-cycle-generation-llc-lease-note-obligations-aa-outlook-stable-2012-01-10

TVA Financing Schemes, Memories of Enron

(Updated, Jan 19, 2012) How will the TVA finance Bellefonte (TVA photo to the left)? A question which has now been answered, the formation of a Delaware registered corporation(s), its name: "John Sevier Combined Cycle Generation LLC plans to issue $900 million of 30-year secured bonds in the U.S. debt markets on Tuesday, according to a person familiar with the issue." http://online.wsj.com/article/BT-CO-20120110-706518.html  A shill corporation of the TVA? But that ain't all folks, Watts Barr Nuclear LLC will be next involving near 3 billion dollars.

John Sevier Combined Cycle Generation LLC (photo by TVA). TVA sells the Combined Cycle Gas plant, then leases it back and we the people and businesses pay for the TVA Boards lack of control and financial management. Not only do we pay for its construction cost and financing we will pay for the $1 billion dollars in revenue to be paid to the newly formed LLC. (Update: per terms of the new Construction Management contract, the TVA will pay an additional $188 million to the new owners for Construction Management.)

The "ponzi scheme" explained: "A Ponzi scheme is a fraudulent investment operation that pays returns to its investors from their own money or the money paid by subsequent investors, rather than from any actual profit earned by the individual or organization running the operation." http://en.wikipedia.org/wiki/Ponzi_scheme

TVA, electricity for all, by any means and regardless of the cost. Historical TVA logo to the right. The John Sevier Combined Cycle Generation LLC is a "shill corporation" formed for no other reason than to circumvent a Congressional mandated debt limit of $30 billion. TVA's "actual debt value" is near $28 billion dollars.

 "John Sevier Combined Cycle Generation LLC plans to issue $900 million of 30-year secured bonds in the U.S. debt markets..." another link- http://www.ubs.wallst.com/ubs/mkt_story.asp?docKey=1329-L1E8CAE2G-1&first=0

The parties to the sale of John Sevier Combined Cycle Gas Generation Facility. (Click on image for an expanded view.)

A sale by the TVA, then a leaseback to the TVA by the  John Sevier Combined Cycle Generation LLC,  registered in Delaware on Jan 3, 2012. It is reported the new LLC is to receive 1 billion dollars in revenue proceeds for their troubles. We the ratepayers will foot the bill. The TVA reports the decision to sell the plant was made at the executive level with the TVA Board delegating the authority for the sale and leaseback of the power generation asset at the August 2011 board meeting. The sale and leaseback deal was accomplished secretively in September 2011. A review of the August 2011 meeting video reveals no specific authority stated in the public meeting regarding a delegation of selling power generation assets then leasing them back. It was discussed but not specifically authorized in the public meeting.

UPDATE Feb. 25, 2012 : A review of the Aug. 18, 2011 TVA Board Meeting Minutes, aquired via a Sierra Club Freedom of Information Act request, reveals an authorization for $4,400,000,000 in "alternative financing agreements." Expenditures for leases, clean air, new power generation facilities...Authorization to sale and lease back. The terms and specifics were never discussed in the open meeting.

                              TVA's Ponzi Scheme - a reminder of ENRON?

Report Links: Market Watch report. http://www.marketwatch.com/story/fitch-rates-john-sevier-combined-cycle-generation-llc-lease-note-obligations-aa-outlook-stable-2012-01-10   
Alcrastore Research: http://www.alacrastore.com/research/s-and-p-credit-research-Summary_John_Sevier_Combined_Cycle_Generation_LLC_Tennessee_Tennessee_Valley_Authority_Wholesale_Electric-929099

Standards & Poors listed abstract concerning this transaction:

Abstract:	Standard&Poor's Ratings Services assigned its 'AA-' rating and stable outlook to John Sevier Combined Cycle Generation LLC (John Sevier LLC), Tenn.'s series 2012 secured notes, issued for the Tennessee Valley Authority (TVA; AA+/Negative). The rating is aligned with TVA's stand-alone credit profile of 'aa-' because the John Sevier LLC lease is based on TVA's general creditworthiness. Applying our government-related entity (GRE) criteria, we believe that the debt service associated with the lease, along with other existing lease-leaseback arrangements that are unconditionally paid as operating expenses of TVA's electric system, is potentially less likely to receive extraordinary financial support from the federal government in periods of distress compared to debt issued directly by TVA and that is denominated in [U.S. notes.]
Brief Excerpt:	RESEARCH Ratings Definitions PDF Summary: John Sevier Combined Cycle Generation LLC, Tennessee Tennessee Valley Authority; Wholesale Electric Publication date: 10-Jan-2012 Primary Credit Analyst: Theodore Chapman, Dallas (1) 214-871-1401;...
Report Type:	Summary
Ticker:	3015A
Issuer:	Tennessee Vy Auth
Sector:	Global Issuers, Public Finance, Structured Finance
Country:	United States

What is to prevent the sale and leaseback of all of TVA's assets? I wonder if the shill corporation scheme could be used to reduce the Federal Deficit? Lets form U.S. Military Bases LLC, sell bonds worth $100 trillion dollars. The Fed could do that for every federal owned facility. We the people would no longer be the owners, the "neu corporate entity" would be the owners.  The bureaucrats and politicians may raise and spend more money in the scam 'till the cows come home with governmental sale leaseback schemes such as this. Schemes such as this may only occur when irresponsible government officials show no concern about debt or Open Government; the TVA board should be ashamed of themselves for their abject neglect of the principles of open government.

The TVA's "shill" corporation, the John Sevier Combined Generation LLC, is an excuse to increase the debt of the TVA over and beyond what the law allows. 

 Who are the officers of this newly formed Delaware corporation, past TVA Board of Directors?

The TVA is not a corporation which may operate beyond the authority of the laws governing the governmental entity's operations. Allowing its corporate executives to sell and lease property without the direct approval of the board of directors appears to violate the intent of the TVA Act concerning the sale of its generation assets.

Next shill corporation, Watts Bar Nuclear, LLC. Instead of a $900 million scheme it will be near a $3 billion scheme costing the ratepayers. Where and when will the debt circumvention schemes stop?

Why is the TVA acting like ENRON?  The Congressional mandated $30 billion debt limit is the answer. TVA can't afford to build Bellefonte due to its $28 billion actual debt value. It must create a schemes to circumvent law for the enrichment of the multinational nuclear corporations and their political puppets. Who will pay for the Bellefonte nuclear sinkhole and the enrichment of politicians and the multinational corporations - we the citizens and businesses of the TVA area will pay the additional debt load with ever rising electrical rates.