Business Context and Reporting Period
This Form 8-K Current Report, filed on August 6, 2018, by American Water Works Company, Inc. (American Water), details a significant capital market transaction executed by its wholly owned subsidiary, American Water Capital Corp. (AWCC). The report covers the closing of a debt offering on August 9, 2018, and the subsequent notification of a prepayment of existing senior notes.
Key Financial Metrics and Transaction Details
- New Debt Issuance: AWCC sold $625.0 million of 3.750% Senior Notes due 2028 and $700.0 million of 4.200% Senior Notes due 2048.
- Total Principal Raised: $1.325 billion aggregate principal amount.
- Net Proceeds: Approximately $1.3 billion (after underwriting discounts, before offering expenses).
- Debt Repayment Plan:
- Repay $191.1 million of 5.62% Senior Notes due December 21, 2018.
- Prepay $100.0 million of 5.62% Series E Senior Notes due March 29, 2019.
- Prepay $100.0 million of 5.77% Series F Senior Notes due March 29, 2022.
- Repay commercial paper obligations.
- Estimated Make-Whole Payment: Approximately $10 million for the prepayment of Series Notes.
Material Changes and Strategic Actions
The primary material change is the refinancing of higher-cost, shorter-term debt with lower-cost, longer-term debt. The company is extending its debt maturity profile by issuing notes due in 2028 and 2048 to replace notes maturing in 2018, 2019, and 2022. Following the prepayments, no principal amount of the Series E or Series F Notes will remain outstanding. The transaction reduces the company's weighted average interest rate on the refinanced portion of its debt.
Outlook, Management Commentary, and Risks
Management intends to use the net proceeds to lend funds to American Water and its regulated operating subsidiaries, alongside the debt repayments listed above. The filing includes a cautionary statement regarding forward-looking statements, specifically concerning the prepayment of Series Notes, the final make-whole amount, and the allocation of debt extinguishment charges. Management expects substantially all debt extinguishment expenses to be recorded as regulatory assets, which they believe are probable of recovery in future rates. The filing references risk factors detailed in the company's 2017 Form 10-K.
Investor Verification Checklist
- Verify the final make-whole payment amount for the Series Notes prepayment, as the $10 million figure is an estimate.
- Confirm the exact net proceeds after the deduction of all offering expenses.
- Review the regulatory asset treatment of debt extinguishment charges to ensure recovery in future rates is approved by relevant commissions.
- Check the updated debt maturity schedule to reflect the elimination of the Series E and Series F Notes.