8-KMaterial AgreementsFinancial EventsExhibits & Filings

American Water Works Company, Inc. 8-K Report, Material Agreement (Oct 31, 2012)

Filed October 31, 2012For Securities:AWK

Summary

This 8-K filing by American Water Works Company, Inc. (AWK) on October 31, 2012, announces a significant update to its financial flexibility. The company, through its wholly-owned finance subsidiary American Water Capital Corp. (AWCC), entered into a new $1 billion unsecured revolving credit facility. This new facility replaces a previous $685 million line of credit and matures in October 2017, with options for extensions. The increased borrowing capacity and extended maturity are positive developments, providing AWK with enhanced financial resources for working capital and general corporate purposes, which is crucial for a utility company with ongoing capital expenditure needs. The new credit agreement includes provisions for potential increases up to $250 million, subject to lender consent, and offers flexibility in interest rate options (Base Rate or LIBOR) with initial margins. A key element for investors is the continuation of the Support Agreement, which functions as a guaranty from the parent company, American Water Works, ensuring that AWCC's obligations to lenders are met. This provides a strong layer of credit support, reducing risk for lenders and, by extension, for AWK's overall financial stability. The filing also confirms the termination of the prior credit agreement.

Key Highlights

  • 1American Water Capital Corp. (AWCC) entered into a new $1 billion unsecured revolving credit facility, replacing a $685 million facility.
  • 2The new credit facility has an initial maturity date of October 2017, with options for up to two one-year extensions.
  • 3AWCC has the option to increase the revolving commitment by up to $250 million, subject to lender consent.
  • 4The credit facility includes sublimits for letters of credit ($150 million) and swingline loans ($100 million).
  • 5Borrowings will bear interest based on either a Base Rate or LIBOR rate, plus applicable margins and a facility fee, which will be adjusted periodically.
  • 6The parent company, American Water Works Company, Inc., continues to provide a support agreement (functional equivalent of a guaranty) for AWCC's debt obligations.
  • 7The new credit agreement contains customary covenants, including a debt-to-capitalization ratio limit of no more than 70% for American Water.

Frequently Asked Questions

The new $1 billion revolving credit facility significantly enhances AWK's financial flexibility and liquidity. It provides a larger pool of funds for working capital and general corporate needs, replacing a smaller, soon-to-expire facility. The extended maturity also offers greater long-term financial stability.

The Support Agreement between American Water Works Company, Inc. and its subsidiary AWCC acts as a functional equivalent of a guaranty. It ensures that if AWCC fails to pay its principal or interest obligations to lenders on time, the parent company, American Water Works, will step in and make those payments. This provides crucial credit support and reduces risk for lenders.

The new credit facility is larger, with a capacity of $1 billion compared to the previous $685 million. It also has a longer maturity date (October 2017, with extension options) compared to the previous agreement which was scheduled to expire in September 2013. Additionally, the new agreement offers more flexibility in potential commitment increases.

A primary financial covenant requires AWCC to ensure that American Water maintains a ratio of Consolidated Total Debt to Consolidated Total Capitalization of no more than 70 percent. The agreement also includes standard affirmative and negative covenants applicable to AWCC, American Water, and significant subsidiaries, as well as customary events of default.