Debt

General

The TVA Act authorizes TVA to issue Bonds in an amount not to exceed $30.0 billion at any time. At September 30, 2011, TVA had only two types of Bonds outstanding: power bonds and discount notes. Power bonds have maturities of between one and 50 years, and discount notes have maturities of less than one year. Power bonds and discount notes are both issued pursuant to section 15d of the TVA Act and pursuant to the Basic Tennessee Valley Authority Power Bond Resolution adopted by the TVA Board on October 6, 1960, as amended on September 28, 1976, October 17, 1989, and March 25, 1992 (the “Basic Resolution”). TVA Bonds are not obligations of the United States, and the United States does not guarantee the payments of principal or interest on Bonds.

Power bonds and discount notes rank on parity and have first priority of payment out of net power proceeds, which are defined as:


•	the remainder of TVA’s gross power revenues


•	after deducting

— the costs of operating, maintaining, and administering its power properties, and

— tax equivalent payments, but


•	before deducting depreciation accruals or other charges representing the amortization of capital expenditures, plus


•	the net proceeds from the sale or other disposition of any power facility or interest therein.

Because TVA’s scheduled lease payments under its leaseback transactions are considered costs of operating, maintaining, and administering its power properties, those payments have priority over TVA’s payments on the Bonds. Once net power proceeds have been applied to payments on power bonds and discount notes as well as any other Bonds that TVA may issue in the future that rank on parity with or subordinate to power bonds and discount notes, Section 2.3 of the Basic Resolution provides that the remaining net power proceeds shall be used only for minimum payments into the U.S. Treasury required by the TVA Act in repayment of and as a return on the Power Program Appropriation Investment, investment in power assets, additional reductions of TVA’s capital obligations, and other lawful purposes related to TVA’s power program.

The TVA Act and the Basic Resolution each contain two bond tests: the rate test and the bondholder protection test. Under the rate test, TVA must charge rates for power which will produce gross revenues sufficient to provide funds for, among other things, debt service on outstanding Bonds. As of September 30, 2011, TVA was in compliance with the rate test. See Note 1 — General. Under the bondholder protection test, TVA must, in successive five-year periods, use an amount of net power proceeds at least equal to the sum of (1) the depreciation accruals and other charges representing the amortization of capital expenditures and (2) the net proceeds from any disposition of power facilities for either the reduction of its capital obligations (including Bonds and the Power Program Appropriation Investment) or investment in power assets.

TVA met the bondholder protection test for the five-year period ended September 30, 2010, and must next meet the bondholder protection test for the five-year period ending September 30, 2015.

Short-Term Debt

The weighted average rates applicable to short-term debt outstanding in the public market at September 30, 2011, 2010, and 2009, were 0.00 percent, 0.04 percent, and 0.06 percent, respectively. During 2011, 2010, and 2009, the maximum outstanding balances of TVA short-term borrowings held by the public were $1.4 billion, $1.3 billion, and $2.7 billion, respectively. For these same years, the average amounts (and weighted average interest rates) of TVA short-term borrowings were approximately $363 million (0.14 percent), $905 million (0.09 percent), and $1.7 billion (0.32 percent), respectively.

Put and Call Options

Bond issues of $1.8 billion held by the public are redeemable in whole or in part, at TVA’s option, on call dates ranging from the present to 2020 and at call prices ranging from 100 percent to 106 percent of the principal amount. Twenty-two Bond issues totaling $656 million, with maturity dates ranging from 2020 to 2041, include a “survivor’s option,” which allows for right of redemption upon the death of a beneficial owner in certain specified circumstances. There is no accounting difference between a “survivor’s option” put and a “regular” put on any TVA put Bond.

Additionally, TVA has two issues of Putable Automatic Rate Reset Securities (“PARRS”) outstanding. After a fixed-rate period of five years, the coupon rate on the PARRS may automatically be reset downward under certain market conditions on an annual basis. The coupon rate reset on the PARRS is based on a calculation. For both series of PARRS, the coupon rate will reset downward on the reset date if the rate calculated is below the then-current coupon rate on the Bond. The calculation dates, potential reset dates, and terms of the calculation are different for each series. The coupon rate on the 1998 Series D PARRS may be reset on June 1 (annually) if the sum of the five-day average of the 30-Year Constant Maturity Treasury (“CMT”) rate for the week ending the last Friday in April, plus 94 basis points, is below the then-current coupon rate. The coupon rate on the 1999 Series A PARRS may be reset on May 1 (annually) if the sum of the five-day average of the 30-Year CMT rate for the week ending the last Friday in March, plus 84 basis points, is below the then-current coupon rate. The coupon rates may only be reset downward, but investors may request to redeem their Bonds at par value in conjunction with a coupon rate reset for a limited period of time prior to the reset dates under certain circumstances.

The coupon rate for the 1998 Series D PARRS, which mature in June 2028, has been reset four times, from an initial rate of 6.75 percent to the current rate of 4.728 percent. In connection with these resets, $238 million of the bonds have been redeemed, so that $330 million of the bonds were outstanding at September 30, 2011. The coupon rate for the 1999 Series A PARRS, which mature in May 2029, has been reset three times, from an initial rate of 6.50 percent to the current rate of 4.50 percent. In connection with these resets, $241 million of the bonds have been redeemed, so that $274 million of the bonds were outstanding at September 30, 2011.

Due to the contingent nature of the put option on the PARRS, TVA determines whether the PARRS should be classified as long-term debt or current maturities of long-term debt by calculating the expected reset rate for the bonds on the calculation dates, described above, which occur in the third quarter of TVA's fiscal year. If the reset rate is less than the then-current coupon rate on the PARRS, the PARRS are included in current maturities. Otherwise, the PARRS are included in long-term debt. At September 30, 2011, TVA has not determined that it is probable that the reset rate will be less than than the current coupon rate on the PARRS on the calculation dates in the third quarter of 2012; therefore, the par amount outstanding for each series of PARRS was classified as long-term debt.

Debt Securities Activity

The table below summarizes TVA’s Bond activity for the period from October 1, 2009, to September 30, 2011.



Debt Securities Activity For the year ended September 30
Issues	2011		2010
electronotes^®
First quarter	$	—	$	82
Second quarter	40		34
Third quarter	42		63
Fourth quarter	17		—
2009 Series C	—		500
2010 Series A	—		1,000
2011 Series A	1,500		—
Total	$	1,599	$	1,679

Redemptions/Maturities
electronotes^®
First quarter	$	2	$	1
Second quarter	10		25
Third quarter	2		3
Fourth quarter	1		34
2001 Series A	1,000		—
2009 Series A	4		3
2009 Series B	2		3
Total	$	1,021	$	69

Debt Outstanding

Debt outstanding at September 30, 2011, and 2010, consisted of the following:



Short-Term Debt At September 30
CUSIP or Other Identifier	Maturity	Call/(Put) Date	Coupon Rate		2011 Par Amount		2010 Par Amount
Discount notes (net of discount)					$	482	$	27
Current maturities of long-term debt
88059TEH0	10/15/2023	10/15/2011	5.00	%	14		—
880591EE8	5/15/2012		2.25	%	3		3
88059TEL1	5/15/2012		2.65	%	3		3
880591EF5	6/15/2012		3.77	%	2		2
880591DL3	5/23/2012		7.14	%	29		—
880591DT6	5/23/2012		6.79	%	1,486		—
880591DN9	1/18/2011		5.63	%	—		1,000
					1,537		1,008
Total debt due within one year, net					$	2,019	$	1,035



Long-Term Debt⁽¹⁾ At September 30
CUSIP or Other Identifier	Maturity	Coupon Rate	Call Date	2011 Par		2010 Par		Stock Exchange Listings
electronotes^®(2)	02/15/2020 - 07/15/2041	2.65 - 5.00%	10/15/2011 - 07/15/2016	$	661	$	591	None
880591DN9	1/18/2011	5.63%		—		—		New York, Luxembourg
880591DL3	5/23/2012	7.14%		—		29		New York
880591DT6	5/23/2012	6.79%		—		1,486		New York
880591CW0	3/15/2013	6.00%		1,359		1,359		New York, Hong Kong, Luxembourg, Singapore
880591DW9	8/1/2013	4.75%		940		940		New York, Luxembourg
880591DY5	6/15/2015	4.38%		1,000		1,000		New York, Luxembourg
880591EE8 ⁽³⁾	11/15/2015	2.25%		11		15		None
880591DS8	12/15/2016	4.88%		524		524		New York
880591EA6	7/18/2017	5.50%		1,000		1,000		New York, Luxembourg
880591CU4	12/15/2017	6.25%		650		650		New York
880591EC2	4/1/2018	4.50%		1,000		1,000		New York, Luxembourg
880591EL2	2/15/2021	3.88%		1,500		—		New York
880591DC3	6/7/2021	5.81%⁽⁴⁾		312		314		New York, Luxembourg
880591CJ9	11/1/2025	6.75%		1,350		1,350		New York, Hong Kong, Luxembourg, Singapore
880591300⁽⁵⁾	6/1/2028	4.73%		330		330		New York
880591409⁽⁵⁾	5/1/2029	4.50%		274		274		New York
880591DM1	5/1/2030	7.13%		1,000		1,000		New York, Luxembourg
880591DP4	6/7/2032	6.59%⁽⁴⁾		390		393		New York, Luxembourg
880591DV1	7/15/2033	4.70%		472		472		New York, Luxembourg
880591EF5 ⁽³⁾	6/15/2034	3.77%		443		445		None
880591DX7	6/15/2035	4.65%		436		436		New York
880591CK6	4/1/2036	5.98%		121		121		New York
880591CS9	4/1/2036	5.88%		1,500		1,500		New York
880591CP5	1/15/2038	6.15%		1,000		1,000		New York
880591ED0	6/15/2038	5.50%		500		500		New York
880591EH1	9/15/2039	5.25%		2,000		2,000		New York
880591BL5	4/15/2042	8.25%	4/15/2012	1,000		1,000		New York
880591DU3	6/7/2043	4.96%⁽⁴⁾		234		236		New York, Luxembourg



880591CF7	7/15/2045	6.24%	7/15/2020	140			140			New York
880591EB4	1/15/2048	4.88%		500			500			New York, Luxembourg
880591DZ2	4/1/2056	5.38%		1,000			1,000			New York
880591EJ7	9/15/2060	4.63%		1,000			1,000			New York
Subtotal				22,647			22,605
Unamortized discounts, premiums, and other				(235		)	(216		)
Total long-term outstanding power bonds, net				$	22,412		$	22,389
Notes (1) The above table includes net exchange losses from currency transactions of $7 million at September 30, 2011. (2) Includes one electronote^® with partial maturities of principal for each required annual payment. (3) These bonds include partial maturities of principal for each required annual payment. (4) The coupon rate represents TVA’s effective interest rate. (5) TVA PARRS, CUSIP numbers 880591300 and 880591409, may be redeemed under certain conditions. See Put and Call Options.



Maturities Due in the Year Ending September 30
	2012		2013		2014		2015		2016		Thereafter		Total
Long-term debt including current maturities⁽¹⁾	$	1,537	$	2,308	$	32	$	1,032	$	32	$	19,236	$	24,177
Note (1) Does not include noncash items of foreign currency exchange loss of $7 million and net discount on sale of Bonds of $235 million.

Credit Facility Agreements

TVA and the U.S. Treasury have entered into a memorandum of understanding under which the U.S. Treasury provides TVA with a $150 million credit facility. This credit facility matures on September 30, 2012, and is expected to be renewed. This arrangement is pursuant to the TVA Act. TVA plans to use the U.S. Treasury credit facility as a secondary source of liquidity. The interest rate on any borrowing under this facility is based on the average rate on outstanding marketable obligations of the United States with maturities from date of issue of one year or less. There were no borrowings outstanding under the facility at September 30, 2011.

TVA also has funding available in the form of three long-term revolving credit facilities totaling $2.5 billion. Both the $0.5 billion and one of the $1.0 billion credit facilities mature on January 14, 2014, and the other $1.0 billion credit facility matures on May 11, 2014. The credit facilities also accommodate the issuance of letters of credit. The interest rate on any borrowing under these facilities is variable based on market factors and the rating of TVA’s senior unsecured long-term non-credit enhanced debt. TVA is required to pay an unused facility fee on the portion of the total $2.5 billion which TVA has not borrowed or committed under letters of credit. This fee, along with letter of credit fees, fluctuates depending on the rating of TVA’s senior unsecured long-term non-credit enhanced debt. At September 30, 2011, and September 30, 2010, there were $575 million and $411 million, respectively, of letters of credit outstanding under the facilities in place at those times, and there were no borrowings outstanding. See Note 13 — Other Derivative Instruments — Collateral.