8-KMaterial AgreementsExhibits & Filings

American Water Works Company, Inc. 8-K Report, Material Agreement (Feb 5, 2024)

Filed February 5, 2024For Securities:AWK

Summary

American Water Works Company, Inc. (AWK) announced an amendment to a Secured Seller Note Agreement on February 5, 2024, related to the prior sale of its Homeowner Services Group (HOS). The key amendment involves increasing the principal amount of the note from $720 million to $795 million. This increase satisfies a $75 million contingent cash payment owed by the borrower, Lakehouse Buyer Inc. (an indirect subsidiary of funds advised by Apax Partners LLP), related to the HOS sale. Additionally, the annual interest rate on the note has been raised from 7.00% to 10.00% until maturity, and certain debt covenants have been amended. Notably, the amendment eliminates the lender's conditional right to demand full repayment of the principal in cash starting December 9, 2024. This change provides greater financing certainty for the borrower and is intended to facilitate a proposed acquisition by the borrower. The company views these amendments as reflecting the current interest rate environment and enhancing its overall credit protection, while also supporting the borrower's strategic initiatives. The final maturity date of the note remains December 9, 2026.

Key Highlights

  • 1Secured Seller Note Principal Increased: The principal amount of the Secured Seller Note has been increased from $720 million to $795 million.
  • 2Contingent Payment Satisfied: The $75 million contingent cash payment related to the former Homeowner Services Group (HOS) sale has been satisfied via this note increase.
  • 3Interest Rate Hike: The annual interest rate on the note has been increased from 7.00% to 10.00%.
  • 4Lender Put Option Eliminated: The borrower's conditional right to demand full principal repayment on December 9, 2024, has been removed, providing financing certainty.
  • 5Facilitates Borrower Acquisition: The amendments are intended to support a proposed acquisition by the borrower, Lakehouse Buyer Inc.
  • 6Apax Partners Equity Contribution: Apax Partners will contribute approximately $87 million in equity if the borrower's acquisition is completed, or $50 million if not completed by May 2, 2024, with a potential $75 million repayment obligation if the acquisition fails.

Frequently Asked Questions

The amendment increases the principal from $720 million to $795 million, satisfying a $75 million contingent payment related to the sale of American Water's former Homeowner Services Group. It also raises the interest rate from 7.00% to 10.00% and removes the lender's right to demand early full repayment, providing greater financing certainty for the borrower and facilitating their potential acquisition.

For AWK, this amendment converts a potential $75 million cash contingency into an increased note receivable with a higher interest rate (10.00%). The removal of the lender's put option also reduces potential short-term liquidity risks associated with that note. The company views the changes as enhancing its credit protection and reflecting current market conditions.

If the borrower's acquisition is completed by May 2, 2024, Apax Partners will contribute approximately $87 million in equity to the borrower. If the acquisition is not completed by May 2, 2024, Apax will contribute $50 million in equity, and the borrower must repay $75 million in cash to AWK within three business days, representing the satisfaction of the HOS Contingent Payment.

The final maturity date of the Amended Secured Seller Note remains December 9, 2026.