8-KMaterial AgreementsFinancial EventsExhibits & Filings

American Water Works Company, Inc. 8-K Report, Material Agreement (May 19, 2008)

Filed May 19, 2008For Securities:AWK

Summary

American Water Works Company, Inc. (AWK), through its wholly-owned financing subsidiary American Water Capital Corp. (AWCC), has issued $200 million in senior unsecured notes in a private placement. The proceeds are primarily intended to repay outstanding short-term indebtedness of AWCC, with any remaining funds available for other corporate purposes. This move aims to strengthen the company's capital structure and manage its short-term debt obligations. The issuance consists of two series: $110 million in 6.25% notes maturing in May 2018 and $90 million in 6.55% notes maturing in May 2023. The parent company, American Water Works, has provided a support agreement, meaning it will ensure AWCC can meet its payment obligations on these notes, effectively making these obligations guaranteed by the parent. This structure provides an additional layer of security for the noteholders.

Key Highlights

  • 1AWCC, a subsidiary of American Water Works, issued $200 million in senior unsecured notes via a private placement.
  • 2Proceeds are designated to repay AWCC's outstanding short-term indebtedness, supporting financial stability.
  • 3The notes are issued in two series: $110 million at 6.25% due in 2018 and $90 million at 6.55% due in 2023.
  • 4American Water Works has entered into a support agreement, guaranteeing payments of principal and interest on the AWCC notes.
  • 5The Note Purchase Agreement includes covenants restricting affiliate transactions, mergers, changes in business lines, asset sales, and dividend payments.
  • 6Key financial covenants require AWCC and the registrant to maintain a consolidated total indebtedness to consolidated total capitalization ratio below 0.70:1.00.
  • 7The agreement outlines events of default, including non-payment, covenant breaches, cross-defaults, bankruptcy, and change of control, which can lead to accelerated repayment.

Frequently Asked Questions

The primary purpose is to repay American Water Capital Corp.'s (AWCC) outstanding short-term indebtedness. This helps manage the company's short-term debt obligations and strengthens its overall financial position.

Yes, American Water Works Company, Inc. has entered into a support agreement, which requires the company to provide funds to AWCC if it is unable to make timely payments on the Senior Notes. This means the parent company effectively guarantees these obligations.

The agreement includes covenants that restrict various activities, such as engaging in transactions with affiliates, mergers or consolidations, changing business lines, incurring additional secured debt, paying dividends or repurchasing stock, selling assets, and incurring Priority Debt above certain thresholds. A key financial covenant requires maintaining a consolidated total indebtedness to consolidated total capitalization ratio of not more than 0.70 to 1.00.

Upon the occurrence of an event of default (such as non-payment, breach of covenants, bankruptcy, or change of control), the purchasers of the notes have certain acceleration rights. This means they can demand immediate payment of unpaid principal, accrued interest, and a 'make-whole' amount designed to compensate for future lost interest.