Apr 10, 2009

American Water Closes Offering to Issue $80 Million in Tax-Exempt Bonds for Water Projects

Proceeds will be used to fund capital investments in Pennsylvania and reduce short-term debt

American Water Works Co., Inc., has announced that its Pennsylvania subsidiary, Pennsylvania American Water, closed an offering to issue $80 million in tax-exempt water facility revenue bonds through the Pennsylvania Economic Development Financing Authority (PEDFA). The water facility revenue bonds are rated “A” by Standard & Poor’s and “A3” by Moody’s and will allow Pennsylvania American Water to lower its cost of capital.

The coupon rate on the bonds, which were underwritten by Morgan Stanley, is 6.2% with a maturity date of April 1, 2039. Under the tax-exempt offering, the interest paid to investors is non-taxable. As an additional benefit to bondholders, the recently enacted American Recovery and Reinvestment Act has established that the interest is not includable in the Alternative Minimum Tax (AMT) calculation.

In February, American Water completed its public offering of $75 million aggregate principal amount of 8.25% Senior Monthly Notes due 2038. The company also has plans to issue additional long-term tax-exempt bonds throughout the year to finance capital expenditures in several of its state subsidiaries.

“The proceeds from the long-term bond offerings will be used to fund our capital investments and reduce short-term debt,” said Don Correll, president and CEO of American Water. “Our success in meeting our liquidity needs has allowed us to stay on track to meet our long-term plan of investing $4 to $4.5 billion in our infrastructure the next five years.”

In Pennsylvania, American Water will use the proceeds to help finance the following capital improvements projects:
• Coatesville Wastewater Treatment Plant upgrade and expansion in Chester County. The company is replacing aging equipment and increasing treatment capacity to enable the plant to meet more stringent future environmental standards. The expansion will also allow the company to meet projected customer demands. Construction began in May 2008, with an estimated completion date by the end of 2009.
• Becks Run Pump Station construction in Allegheny County. The company is building a new pump station and intake facilities to replace an 1890s-era pump station that supplies raw water from the Monongahela River to the Hays Mine Water Treatment Facility. The project is slated to begin by early 2010, with an estimated completion date of December 2011.
• Hays Mine Water Treatment Plant upgrade in Pittsburgh. The company is improving the facility’s chemical storage and feed systems, including a new chemical building to house all of the pre- and post-treatment chemicals. Construction is scheduled to begin in early 2010, with an estimated completion date of December 2011.

In addition to the bonds’ tax-exempt benefit for investors, the favorable interest rate that Pennsylvania American Water can obtain in the market at this time lowers the cost of capital for important water and wastewater system upgrades.