Business Context and Reporting Period
This Form 8-K filing by American Water Works Company, Inc. (American Water) reports a current event dated August 7, 2017, with the report filed on August 10, 2017. The filing details a significant capital market transaction executed by American Water Capital Corp. (AWCC), a wholly owned subsidiary of American Water.
Key Financial Metrics and Transaction Details
- New Debt Issuance: AWCC sold $600.0 million of 2.95% Senior Notes due 2027 and $750.0 million of 3.75% Senior Notes due 2047.
- Total Principal Raised: $1.35 billion aggregate principal amount.
- Net Proceeds: Approximately $1.3 billion (after underwriting discounts, before offering expenses).
- Debt Repayment Plan:
- Repay $524 million of 6.085% Senior Notes due October 2017.
- Prepay approximately $138.4 million of 5.62% Series C Senior Notes due 2018.
- Prepay approximately $181.4 million of 5.77% Series D Senior Notes due 2021.
- Repay commercial paper obligations.
- Remaining Series Notes: Approximately $441.7 million aggregate principal amount will remain outstanding after prepayments.
Material Changes and Financial Impact
The transaction represents a material refinancing activity intended to extend the maturity profile of the company's debt and reduce interest costs. Key financial impacts include:
- Debt Extinguishment Charge: American Water expects to record a one-time charge of approximately $7 million in the third quarter of 2017 related to the prepayment of Series Notes.
- Make-Whole Payment: The prepayment of Series Notes on or about September 13, 2017, will include a make-whole amount currently estimated at $33 million.
- Regulatory Assets: Substantially all debt extinguishment charges allocable to utility subsidiaries are expected to be recorded as regulatory assets, which management believes are probable of recovery in future rates.
Guidance, Outlook, and Risks
Management intends to use the net proceeds to lend funds to American Water and its regulated operating subsidiaries. The filing includes a cautionary statement regarding forward-looking statements, noting that actual results may differ materially due to various risks and uncertainties. Specific risks highlighted include the final amount of the make-whole payment, the precise debt extinguishment charge, and the recoverability of regulatory assets.
Investor Verification Checklist
- Verify the final make-whole payment amount upon the September 13, 2017 prepayment date.
- Confirm the exact debt extinguishment charge recorded in the Q3 2017 financial statements.
- Monitor regulatory commission approvals regarding the recovery of debt extinguishment charges as regulatory assets.
- Review the updated debt maturity schedule following the repayment of the 2017 notes and partial prepayment of Series C and D notes.