8-KMaterial AgreementsRegulation FDOther Events+1

American Water Works Company, Inc. 8-K Report, Material Agreement (Dec 9, 2021)

Filed December 9, 2021For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) has filed an 8-K report detailing the closing of the sale of its Homeowner Services Group (HOS Companies) to Lakehouse Buyer Inc., a subsidiary of funds advised by Apax Partners LLP. The transaction, valued at approximately $1.275 billion, closed on December 9, 2021. This divestiture represents a strategic move by AWK to focus on its core regulated utility businesses. The sale involved several key financial arrangements. American Water Enterprises, LLC (AWE), a subsidiary of AWK, provided a secured seller note of $720 million to the buyer, which bears interest at 7.00% and matures on December 9, 2026. While the buyer cannot prepay this note before December 9, 2025, AWK's subsidiary has a 'Lender Put Right' beginning December 9, 2024, to demand full repayment. Furthermore, AWK has entered into a Revenue Share Agreement, entitling it to 10% to 15% of the revenue generated by the divested HOS Companies, depending on the type of service arrangement. This report also discloses a Common Interest and Cooperation Agreement related to a federal grand jury investigation involving AWR, aiming to facilitate a common defense and information sharing.

Key Highlights

  • 1Completion of the sale of the Homeowner Services Group (HOS Companies) for approximately $1.275 billion (estimated $1.0 billion net of tax).
  • 2AWK's subsidiary, AWE, provided a $720 million Secured Seller Note to the buyer, bearing 7.00% interest and maturing in December 2026.
  • 3AWK will receive 10% to 15% of the revenue generated by the divested HOS Companies through a Revenue Share Agreement.
  • 4The transaction is expected to allow AWK to focus on its core regulated utility operations.
  • 5A Common Interest and Cooperation Agreement has been established to address a federal grand jury investigation concerning AWR's operations.
  • 6The buyer made an initial cash payment of $485 million, including a working capital adjustment, with a potential additional $75 million payment due by December 31, 2023.

Frequently Asked Questions

This 8-K filing announces the closing of the sale of American Water Works Company's Homeowner Services Group (HOS Companies) and details the material definitive agreements and financial arrangements related to this transaction.

The sale generated initial cash proceeds and includes a $720 million seller note, with potential for future revenue sharing. The proceeds are expected to be used for capital investments in AWK's regulated businesses, allowing the company to focus on its core operations.

The Secured Seller Note is for $720 million, carries a 7.00% annual interest rate, and matures on December 9, 2026. It includes specific provisions regarding repayment, including a 'Lender Put Right' for AWK's subsidiary beginning in December 2024, and a non-call provision for the borrower until December 2025.

The Revenue Share Agreement allows AWK to receive 10% of revenue from existing on-bill arrangements and 15% from new on-bill arrangements generated by the divested HOS Companies for up to 15 years. This provides AWK with an ongoing revenue stream from the sold business.