TEXT-S&P cuts rtgs on TVA-backed leases to 'AA-'

Nov 29- Standard & Poor's Ratings Services said it downgraded by two notches, to 'AA-', various long-term leases with the Tennessee Valley Authority (TVA; AA+/Negative) as obligor. The outlook on the leases is stable, given the fact that a further downgrade of the U.S. would not lower the rating on the leases.

"The downgrade reflects the application of our government-related enterprise criteria to the leases," said Standard & Poor's credit analyst Theodore Chapman. "We view the credit quality of the debt associated with the leases as aligned with TVA's stand-alone credit profile of 'aa-' because the leases were entered into based on TVA's general creditworthiness."

Applying our government-related entity criteria, 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.

The rating action affects about $1.2 billion of leaseback obligations as of Sept. 30, 2011. The ratings affected by this action include the following leases:

-- New Valley Generation I, entered into by TVA in 2000, for peaking capacity at TVA's Johnsonville and Gallatin, Tenn. facilities;

-- New Valley Generation II, entered into in 2001, for peaking capacity at TVA's Lagoon Creek, Tenn. facility;

-- New Valley Generation III, entered into in 2002, also for peaking capacity at TVA's Lagoon Creek facility;

-- New Valley Generation IV, entered into in 2003, for peaking capacity at TVA's Kemper County, Miss. facility;

-- New Valley Generation V, entered into in 2003, for certain transmission-related monitoring and reporting assets; and

-- Chattanooga Computer Center Associates Ltd., entered into in 1981, for certain real property in Chattanooga, Tenn. In January 2011, TVA purchased a portion of the leased assets. The final payment on this lease is Oct. 1, 2012.

RELATED CRITERIA AND RESEARCH

-- USPF Criteria: Electric Utility Ratings, June 15, 2007

-- General Criteria: Rating Government-Related Entities: Methodology And Assumptions, Dec. 9, 2010

-- General Criteria: Stand-Alone Credit Profiles: One Component Of A Rating, Oct. 1, 2010