American Water Works Company, Inc.AWK
American Water Works Company, Inc. Debt Disclosure
Note 12: Long-Term Debt
The Company obtains long-term debt through AWCC primarily to fund capital expenditures of the Regulated Businesses and to lend funds to parent company to refinance debt and for other purposes. Presented in the table below are the components of long-term debt as of December 31:
| Rate | Weighted Average Rate | Maturity | 2021 | 2020 | |||||||||||||||||||||||||
Long-term debt of AWCC: (a) | |||||||||||||||||||||||||||||
| Senior notes—fixed rate | 2.30%-8.27% | 3.83% | 2023-2051 | $ | 8,965 | $ | 8,191 | ||||||||||||||||||||||
| Private activity bonds and government funded debt—fixed rate | 0.60%-2.45% | 1.63% | 2023-2031 | 190 | 191 | ||||||||||||||||||||||||
| Long-term debt of other American Water subsidiaries: | |||||||||||||||||||||||||||||
| Private activity bonds and government funded debt—fixed rate | 0.00%-5.50% | 1.70% | 2022-2048 | 739 | 735 | ||||||||||||||||||||||||
| Mortgage bonds—fixed rate | 6.35%-9.19% | 7.36% | 2023-2039 | 534 | 565 | ||||||||||||||||||||||||
| Mandatorily redeemable preferred stock | 8.47%-9.75% | 8.60% | 2024-2036 | 4 | 5 | ||||||||||||||||||||||||
| Finance lease obligations | 12.25% | 12.25% | 2026 | 1 | 1 | ||||||||||||||||||||||||
| Long-term debt | 10,433 | 9,688 | |||||||||||||||||||||||||||
Unamortized debt (discount) premium, net (b) | (9) | (4) | |||||||||||||||||||||||||||
| Unamortized debt issuance costs | (23) | (22) | |||||||||||||||||||||||||||
| Less current portion of long-term debt | (57) | (329) | |||||||||||||||||||||||||||
| Total long-term debt | $ | 10,344 | $ | 9,333 | |||||||||||||||||||||||||
(a)This indebtedness is considered “debt” for purposes of a support agreement between parent company and AWCC, which serves as a functional equivalent of a full and unconditional guarantee by parent company of AWCC’s payment obligations under such indebtedness.
(b)Includes debt discount, net of fair value adjustments previously recognized in acquisition purchase accounting.
All mortgage bonds and $738 million of the private activity bonds and government funded debt held by the Company’s subsidiaries were collateralized as of December 31, 2021.
Long-term debt indentures contain a number of covenants that, among other things, limit, subject to certain exceptions, AWCC from issuing debt secured by the Company’s consolidated assets. Certain long-term notes require the Company to maintain a ratio of consolidated total indebtedness to consolidated total capitalization of not more than 0.70 to 1.00. The ratio as of December 31, 2021 was 0.60 to 1.00. In addition, the Company has $859 million of notes which include the right to redeem the notes at par value, in whole or in part, from time to time, subject to certain restrictions, with a weighted average interest rate of 1.84%.
Presented in the table below are future sinking fund payments and debt maturities:
| Amount | |||||
| 2022 | $ | 57 | |||
| 2023 | 280 | ||||
| 2024 | 474 | ||||
| 2025 | 597 | ||||
| 2026 | 441 | ||||
| Thereafter | 8,584 | ||||
Presented in the table below are the issuances of long-term debt in 2021:
| Company | Type | Rate | Weighted Average Rate | Maturity | Amount | |||||||||||||||||||||||||||
| AWCC | Senior notes—fixed rate | 2.30%-3.25% | 2.78% | 2031-2051 | $ | 1,100 | ||||||||||||||||||||||||||
| Other American Water subsidiaries | Private activity bonds and government funded debt—fixed rate | 0.00%-5.00% | 0.04% | 2022-2047 | 18 | |||||||||||||||||||||||||||
| Total issuances | $ | 1,118 | ||||||||||||||||||||||||||||||
The Company incurred debt issuance costs of $11 million related to the above issuances.
Presented in the table below are the retirements and redemptions of long-term debt in 2021 through sinking fund provisions, optional redemption or payment at maturity:
| Company | Type | Rate | Weighted Average Rate | Maturity | Amount | |||||||||||||||||||||||||||
| AWCC | Private activity bonds and government funded debt—fixed rate | 1.79%-6.55% | 5.94% | 2021-2031 | $ | 327 | ||||||||||||||||||||||||||
| Other American Water subsidiaries | Private activity mortgage bonds | 9.13%-9.69% | 9.52% | 2021 | 31 | |||||||||||||||||||||||||||
| Other American Water subsidiaries | Private activity bonds and government funded debt—fixed rate | 0.00%-5.50% | 1.38% | 2021-2048 | 13 | |||||||||||||||||||||||||||
| Other American Water subsidiaries | Mandatory redeemable preferred stock | 8.49%-8.49% | 8.49% | 2022-2022 | 1 | |||||||||||||||||||||||||||
| Total retirements and redemptions | $ | 372 | ||||||||||||||||||||||||||||||
On May 10, 2021, AWCC completed a $1.1 billion debt offering which included the sale of $550 million aggregate principal amount of its 2.30% senior notes due 2031 and $550 million aggregate principal amount of its 3.25% senior notes due 2051. At the closing of the offering, AWCC received, after deduction of underwriting discounts and before deduction of offering expenses, net proceeds of $1,086 million. AWCC used the net proceeds of this offering: (i) to lend funds to parent company and its regulated subsidiaries; (ii) to prepay $251 million aggregate principal amount of AWCC’s outstanding 5.77% Series D Senior Notes due December 21, 2021 (the “Series D Notes”) and $76 million aggregate principal amount of AWCC’s outstanding 6.55% Series H Senior Notes due May 15, 2023 (the “Series H Notes,” and together with the Series D Notes, the “Series Notes”); (iii) to repay AWCC’s commercial paper obligations; and (iv) for general corporate purposes. After the prepayments described above, none of the Series D Notes, and approximately $14 million aggregate principal amount of the Series H Notes, remain outstanding. As a result of AWCC’s prepayment of the Series Notes, a make-whole premium of $15 million was paid to the holders thereof on June 14, 2021. Substantially all of the early debt extinguishment costs were allocable to the Company’s utility subsidiaries and recorded as regulatory assets, as the Company believes they are probable of recovery in future rates.
One of the principal market risks to which the Company is exposed is changes in interest rates. In order to manage the exposure, the Company follows risk management policies and procedures, including the use of derivative contracts such as swaps. The Company also reduces exposure to interest rates by managing commercial paper and debt maturities. The Company does not enter into derivative contracts for speculative purposes and does not use leveraged instruments. The derivative contracts entered into are for periods consistent with the related underlying exposures. The Company is exposed to the risk that counterparties to derivative contracts will fail to meet their contractual obligations and minimizes this risk by dealing only with leading, creditworthy financial institutions having long-term credit ratings of “A” or better.
On May 6, 2021, the Company entered into two 10-year treasury lock agreements, with notional amounts of $125 million and $150 million, to reduce interest rate exposure on debt, which was subsequently issued on May 10, 2021. These treasury lock agreements had an average fixed rate of 1.58%. The Company designated these treasury lock agreements as cash flow hedges, with their fair value recorded in accumulated other comprehensive gain or loss. On May 10, 2021, the Company terminated these two treasury lock agreements with an aggregate notional amount of $275 million, realizing a net gain of less than $1 million, to be amortized through interest, net over a 10-year period, in accordance with the terms of the $1.1 billion new debt issued on May 10, 2021. No ineffectiveness was recognized on hedging instruments for the years ended December 31, 2021 and 2020.Historical Timeline
| Fiscal Year | Filed | |
|---|---|---|
| 2021 | Feb 16, 2022 | Showing above |
| 2020 | Feb 24, 2021 | |
| 2019 | Feb 18, 2020 | |
| 2018 | Feb 19, 2019 | |
| 2017 | Feb 20, 2018 | |
| 2016 | Feb 21, 2017 | |
| 2015 | Feb 25, 2016 | |
About Debt Disclosures
Debt disclosures detail a company's borrowing structure — the types of instruments, interest rates, maturity schedule, and covenant restrictions that define its financial obligations and flexibility. This section is essential for assessing refinancing risk, interest rate exposure, and the margin of safety against financial distress.
Key signals: the maturity schedule reveals concentration risk — large maturities within 1-2 years during tight credit markets can force dilutive refinancing or asset sales. Compare the fair value of debt against carrying amount to gauge whether the market views the company's credit risk differently than the balance sheet suggests. Watch covenant compliance disclosures for tightening cushions, especially leverage and interest coverage ratios. Variable-rate debt exposure quantifies sensitivity to interest rate changes. Secured versus unsecured mix affects recovery rates and future borrowing capacity. Compare net debt-to-EBITDA against industry peers and covenant limits to assess financial health.