American Water Works Company, Inc. - Form 8-K Summary
Business Context and Reporting Period
Date of Report: October 29, 2012
Company: American Water Works Company, Inc. (American Water)
Subsidiary: American Water Capital Corp. (AWCC)
Event: Entry into a new material definitive credit agreement and termination of the prior agreement.
Key Financial Metrics and Facility Details
This filing details the restructuring of the company's revolving credit facility rather than reporting operational financial results (revenue, profit, or cash flow).
- New Facility Size: $1.0 billion unsecured revolving credit facility.
- Sublimits: $150 million for letters of credit; $100 million for swingline loans.
- Expansion Option: Up to $250 million additional commitment subject to lender consent.
- Interest Rates (Initial):
- Base Rate: 0.00% margin.
- LIBOR Rate: 1.00% margin.
- Facility Fee: Initially 0.125% per annum on full commitments.
- Debt Covenant: Consolidated Total Debt to Consolidated Total Capitalization ratio must not exceed 70%.
- Maturity: October 2017 (subject to two 1-year extensions).
Material Changes Versus Prior Period
The new agreement replaces the previous credit agreement dated September 15, 2006.
- Capacity Increase: Facility size increased from $685 million to $1.0 billion.
- Term Extension: The previous agreement was set to expire in September 2013; the new agreement extends maturity to October 2017.
- Interest Margin Change: The terminated agreement carried a LIBOR margin of 0.225% at the time of termination. The new agreement sets an initial LIBOR margin of 1.00% (subject to adjustment based on credit rating).
- Commitment Fee Change: The terminated agreement had a 0.075% annual commitment fee; the new agreement sets an initial facility fee of 0.125%.
Outlook, Risks, and Contingencies
Management Commentary: The facility is intended to provide ongoing working capital and for other general corporate purposes.
Guaranty Structure: The credit facility is supported by a Support Agreement (functional equivalent of a guaranty) where American Water agrees to pay principal or interest if AWCC fails to do so.
Risks and Covenants:
- Events of Default: Include non-payment, material inaccuracy of representations, non-performance of covenants, default on other material debt, bankruptcy/insolvency, or invalidity of the Support Agreement.
- Variable Costs: Interest margins and facility fees will adjust periodically based on AWCC's credit rating. Margins may range from 0.00% to 0.475% (Base Rate) and 0.800% to 1.475% (LIBOR).
Key Facts for Investor Verification
- Verify the current credit rating of AWCC to determine the applicable interest margin and facility fee within the stated ranges.
- Confirm the company's current Consolidated Total Debt to Consolidated Total Capitalization ratio to ensure compliance with the 70% covenant.
- Review the full text of the Credit Agreement (Exhibit 99.1) and Support Agreement (Exhibit 99.2) for specific definitions of "Consolidated Total Debt" and "Consolidated Total Capitalization."
- Note that the initial interest margin on LIBOR loans (1.00%) is higher than the margin on the terminated agreement (0.225%), potentially impacting future interest expense.