8-KMaterial AgreementsFinancial EventsExhibits & Filings

American Water Works Company, Inc. 8-K Report, Material Agreement (Dec 3, 2008)

Filed December 3, 2008For Securities:AWK

Summary

This 8-K filing by American Water Works Company, Inc. (AWK) on December 3, 2008, primarily reports on a material definitive agreement and the creation of a direct financial obligation. American Water Capital Corp. (AWCC), a wholly-owned subsidiary, successfully completed a public offering of $75 million in 10% Senior Monthly Notes due 2038. These notes are governed by an indenture with Wells Fargo Bank, National Association, as trustee. For investors, the key takeaway is the issuance of new debt, which increases AWK's leverage. The company has provided a support agreement, backing AWCC's obligations and allowing noteholders to proceed directly against the parent company if AWCC defaults. This structure implies a commitment from AWK to service this new debt. The notes carry a significant coupon rate of 10%, reflecting market conditions at the time and the tenor of the debt.

Key Highlights

  • 1American Water Capital Corp. (AWCC), a subsidiary of American Water Works Company, Inc. (AWK), issued $75 million in Senior Monthly Notes due 2038.
  • 2The Notes carry a 10% annual interest rate.
  • 3The offering was completed on November 26, 2008.
  • 4AWCC has the option to redeem the notes starting December 1, 2013.
  • 5A change of control provision requires AWCC to offer to repurchase the notes at 101% of the principal amount.
  • 6AWK has provided a support agreement, guaranteeing AWCC's payments to noteholders.
  • 7Noteholders can pursue claims directly against AWK if AWCC fails to make timely payments.

Frequently Asked Questions

The main purpose of this 8-K filing is to report on the creation of a material definitive agreement and a direct financial obligation. Specifically, it details the issuance of $75 million in Senior Monthly Notes by American Water Capital Corp. (AWCC), a subsidiary of American Water Works Company, Inc. (AWK).

The notes are 10% Senior Monthly Notes due 2038, totaling $75 million in aggregate principal amount. They were issued under an indenture with Wells Fargo Bank, National Association, as trustee. The notes can be redeemed by AWCC starting December 1, 2013, and must be repurchased at 101% of the principal amount in the event of a change of control.

Yes, AWK has provided a support agreement whereby it agrees to provide funds to AWCC if AWCC is unable to make timely payments of interest or principal on the notes. Furthermore, holders of the notes may proceed directly against AWK if AWCC fails to make payments on a timely basis, making AWK indirectly responsible for servicing this debt.

The 10% interest rate indicates the cost of borrowing for AWCC and, by extension, for AWK. This relatively high coupon rate, especially for long-term debt issued in late 2008, reflects prevailing market conditions and the perceived risk associated with the debt instrument at that time.