8-KMaterial AgreementsFinancial EventsOther Events+1

American Water Works Company, Inc. 8-K Report, Material Agreement (Mar 21, 2018)

Filed March 21, 2018For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) announced on March 21, 2018, significant amendments and restatements to its credit agreement with its wholly owned finance subsidiary, American Water Capital Corp. (AWCC). These changes primarily involve an increase in the total credit facility commitments from $1.75 billion to $2.25 billion, along with an extension of the maturity date from June 2020 to March 2023. This enhanced financial flexibility is intended to support AWCC's commercial paper program, which was also expanded. Furthermore, the filing clarifies that obligations under the credit agreement are considered "debt" for American Water under a pre-existing Support Agreement, functionally acting as a guarantee. The updated agreement also outlines various covenants that AWCC and American Water must adhere to, including financial ratios and restrictions on liens and sale-leaseback transactions. The potential for acceleration of repayment obligations in the event of default is also detailed, providing transparency for investors regarding the company's financial commitments and oversight.

Key Highlights

  • 1Increased revolving credit facility commitment from $1.75 billion to $2.25 billion.
  • 2Extended the maturity date of the credit facility from June 2020 to March 2023.
  • 3AWCC's commercial paper program (CP Program) size increased to $2.1 billion from $1.6 billion.
  • 4Obligations under the credit agreement are considered 'debt' for American Water under the Support Agreement, akin to a functional guarantee.
  • 5The agreement includes covenants such as maintaining a debt-to-capitalization ratio not exceeding 0.70 to 1.0.
  • 6The filing details events of default that could lead to acceleration of repayment obligations.
  • 7No amounts were borrowed under the new credit agreement as of March 21, 2018, except for letters of credit.

Frequently Asked Questions

The amended credit agreement provides American Water with increased financial flexibility by raising the total borrowing capacity under its revolving credit facility and extending its maturity date. This allows the company to better manage its short-term financing needs, particularly through its commercial paper program, and supports its ongoing operational and capital investment strategies.

The filing confirms that AWCC's obligations under the credit agreement are treated as 'debt' for American Water under a Support Agreement. This means American Water has essentially provided a functional guarantee for these obligations. The company must also adhere to specific financial covenants and restrictions outlined in the agreement to avoid default.

As of the filing date, March 21, 2018, no new amounts had been borrowed under the amended credit agreement, except for existing letters of credit issued under the facility's sub-limit. The agreement increases the *capacity* for borrowing, rather than reflecting immediate new debt issuance.

The expansion of the commercial paper program to $2.1 billion allows AWCC to issue more short-term debt to fund its operations and meet its financial obligations. This is directly supported by the larger revolving credit facility, providing a backstop if needed.