8-KOther EventsExhibits & Filings

American Water Works Company, Inc. 8-K Report, Corporate Update (Aug 10, 2017)

Filed August 10, 2017For Securities:AWK

Summary

American Water Works Company, Inc. (AWK), through its wholly owned subsidiary American Water Capital Corp. (AWCC), successfully closed a debt offering on August 10, 2017, raising approximately $1.3 billion in net proceeds. This capital infusion was generated from the sale of $600 million of 2.95% Senior Notes due 2027 and $750 million of 3.75% Senior Notes due 2047. The company intends to strategically deploy these funds to enhance its capital structure and operational flexibility. The proceeds will be primarily used to repay existing debt, including $524 million of 6.085% Senior Notes due 2017 and to prepay approximately $319.8 million of existing Series C and Series D Senior Notes, which carry higher interest rates (5.62% and 5.77% respectively). This proactive debt management aims to reduce future interest expenses and refinance existing obligations at more favorable rates. Additionally, a portion of the proceeds will address commercial paper obligations and support general corporate purposes, positioning AWK for continued growth and investment in its regulated utility operations.

Key Highlights

  • 1AWCC issued $1.35 billion in new senior notes ($600M in 2027 Notes and $750M in 2047 Notes).
  • 2Net proceeds from the offering totaled approximately $1.3 billion.
  • 3The proceeds will be used to repay $524 million of maturing 2017 Senior Notes.
  • 4AWCC will prepay approximately $319.8 million of higher-interest Series C and D Senior Notes.
  • 5A one-time debt extinguishment charge of approximately $7 million is expected in Q3 2017 due to the Series Notes prepayment.
  • 6The debt extinguishment charges allocable to utility subsidiaries are expected to be recorded as regulatory assets, likely recoverable through future rates.
  • 7The offering strengthens AWK's liquidity and optimizes its debt maturity profile.

Frequently Asked Questions

The primary purpose of the debt offering was to raise capital to refinance existing debt, including maturing notes and higher-coupon senior notes, and to fund general corporate purposes. This strategic move aims to lower interest expenses and improve the company's debt structure.

The net proceeds will be used to repay $524 million of AWCC's 6.085% Senior Notes due October 2017, prepay approximately $319.8 million of Series C and Series D Senior Notes (carrying 5.62% and 5.77% interest rates respectively), repay commercial paper obligations, and for general corporate purposes. The remaining proceeds will be lent to American Water and its regulated operating subsidiaries.

Yes, American Water expects to record a one-time debt extinguishment charge of approximately $7 million in the third quarter of 2017 due to the prepayment of the Series Notes. However, charges allocated to its utility subsidiaries are anticipated to be treated as regulatory assets, expected to be recovered through future customer rates.

Refinancing the Series C and Series D notes, which carry higher interest rates (5.62% and 5.77%), with proceeds from the new, lower-interest notes (2.95% and 3.75%) will reduce the company's overall interest expense and improve its profitability over the long term.