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Rating Action:

Moody's Assigns Baa2 rating to American Water Capital Corp.'s $35 million Water Facility Revenue Bonds

09 Aug 2010

New York, August 09, 2010 -- Moody's Investors Service has assigned a Baa2 rating to American Water Capital Corporation's (AWCC) planned offering of approximately $35.0 million in tax-exempt revenue bonds (due 2040). The outlook is stable.

The bonds are senior unsecured and are being offered pursuant to a Loan Agreement between the California Pollution Control Finance Authority (Authority) and AWCC, a finance subsidiary of American Water Works Company, Inc (American Water). The notes, issued by the Authority, are limited obligations of the Authority and are serviced solely by cash flows from American Water. Proceeds from the issuance will be used to finance improvements to certain water facilities in California.

AWCC, a Delaware corporation, is the wholly-owned finance subsidiary of American Water. AWCC's senior unsecured Baa2 rating is equalized with its parent, American Water. We note that American Water has provided credit enhancement through a support agreement between American Water and AWCC. Because Moody's effectively views this structure as akin to a guarantee, no notching differentiation exists between the two entities. Nevertheless, we note that approximately 64% of American Water's consolidated debt ($5.6 billion at June 30, 2010) resides at AWCC, with the balance at the various regulated operating subsidiaries where the material cash flows are generated.

Debt at AWCC does not benefit from any explicit upstream guarantees from the regulated subsidiary utility operations nor does the debt obligations of the subsidiaries benefit from any explicit downstream guarantee from American Water. American Water's primary source of cash to service debt at AWCC comes from the company's regulated utility operations. Although Moody's believes the current ratings capture the cash generating ability of those subsidiary operations, we note that dividends will be limited to the retained, undistributed or current earnings of each jurisdiction. The company's currently expressed target is to have each of its regulated subsidiaries pay a quarterly dividend equal to 75% of net income (of the previous quarter).

The last rating action for American Water was October 12, 2007, when Moody's downgraded American Water's senior unsecured rating one notch to Baa2 from Baa1 and confirmed the P-2 short-term rating.

The rating assigned on the California Pollution Control Financing Authority Water Facility Revenue Bonds was assigned by evaluating factors believed to be relevant to the credit profile of American Water such as the business risk of the issuer versus others within its industry, the capital structure and financial risk of the issuer, the projected performance of American Water over the near to intermediate term, and American Water's history of achieving consistent operating performance. These attributes were compared against other issuers both within and outside of the company's core peer group. American Water's ratings are believed to be comparable to the ratings assigned to other issuers of similar credit risk.

The principal methodology used in rating American Water, is Moody's "Global Regulated Water Utilities", published in December 2009 and available on www.moodys.com in the Rating Methodologies sub-directory under the Research & Ratings tab. Other methodologies and factors that may have been considered in the process of rating this issuer can also be found in the Rating Methodologies sub-directory on Moody's website.

Headquartered in Voorhees, New Jersey, American Water Works Company, Inc. is the largest investor-owned provider of water, wastewater and related services in North America. It is the parent company of numerous water utilities in the United States and reported revenue in 2009 of $2.4 billion.

New York
James O'Shaughnessy
Analyst
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
William L. Hess
MD - Utilities
Infrastructure Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
USA

Moody's Assigns Baa2 rating to American Water Capital Corp.'s $35 million Water Facility Revenue Bonds
No Related Data.
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