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Rating Action:

Moody's Changes American Water Works Outlook to Positive from Stable

Global Credit Research - 22 Apr 2015

New York, April 22, 2015 -- Moody's Investors Service, ("Moody's") today affirmed the ratings of American Water Works Company, Inc. (AWK; Baa1 issuer rating) and its subsidiaries American Water Capital Corp. (AWCC; Baa1 senior unsecured rating and P-2 commercial paper rating) New Jersey American Water (NJ-AWC; A3 issuer rating) and Pennsylvania American Water (PA-AWC; A3 issuer rating). At the same time, Moody's changed the rating outlooks for AWK and AWCC to positive from stable. The rating outlooks for NJ-AWC and PA-AWC are stable.

RATINGS RATIONALE

"The outlook change for American Water reflects our expectation for a sustained improvement in the financial credit ratios, including a ratio of funds from operations to debt" said Assistant Vice President Ryan Wobbrock. "American Water's geographic and regulatory diversity provides a path to achieve a ratings level on par with its largest subsidiaries in New Jersey and Pennsylvania" Wobbrock added.

AWK's financial profile improvement is driven by enhanced cost recovery provisions throughout most of its regulated jurisdictions and through strong cost mitigation efforts. For example, the company's FFO / Net Debt percentage has increased each year since 2010, from 12.7% in 2010 to 17.8% in 2014. While the company has benefitted from generous federal tax policies that temporarily boost cash flow, Moody's expects that better cost recovery (e.g., revenue decoupling and infrastructure trackers) will support improving financial metrics on an ongoing basis.

AWK's rating reflects its size, scale and diversity that results from regulated utility operations across 16 states. This is rather unique in the industry, as most US water utilities are smaller, and have a higher degree of geographic and regulatory concentration. For AWK, consolidated operations benefit from numerous revenue and cash flow streams, which help protect AWK's financial position from the potential of a negative regulatory outcome in any one jurisdiction.

The diversity of AWK also provides a distinctive separation from any potential defaults from its subsidiaries, including its largest subsidiaries in NJ and PA. This provides a path where AWK's consolidated rating could be the same as the rating for its two largest subsidiaries. The consolidated financing subsidiary, AWCC, where approximately 75% of AWK's consolidated debt resides, also contributes to the view that the broader corporate family can support a rating on par with its largest subsidiaries.

The A3 issuer ratings and stable outlook for NJ-AWC and PA-AWC reflect their low-risk business profiles as water utility companies in supportive regulatory environments. We anticipate that each utility will continue to benefit from ongoing credit supportive revenue increases and rate design, while maintaining FFO / Net Debt metrics around 20%, excluding the impacts from one-time tax related inflows.

Rating Outlook

The positive rating outlook for AWK and AWCC reflects our expectation for consolidated FFO / Net Debt to improve to the high-teens range on a sustained basis, with continued regulatory support for cost and investment recovery, and strong operational performance.

What Could Change the Rating - Up

The ratings for AWK and AWCC could be positively impacted by further material improvement to the regulatory support offered to the company, or if FFO / Net Debt metrics were to continue in the high-teens, excluding the benefit from one-time tax incentives.

What Could Change the Rating - Down

We currently do not anticipate any negative ratings momentum; however, AWK's ratings would be negatively impacted by materially negative regulatory decisions, operational concerns such as supply or asset failure, or increasing leverage to the point that FFO / Net Debt declines to the low-teen's for an extended period. Furthermore, if the impacts of drought conditions in California were unmitigated by regulatory support or if materially negative outcomes to litigation (e.g., in West Virginia) were to result in significant financial harm to AWK, ratings could be pressured downward.

Issuer: American Water Capital Corp.

..Outlook Actions:

....Outlook, Changed To Positive From Stable

..Affirmations:

.... Issuer Rating (Local Currency) , Affirmed Baa1

....Multiple Seniority Shelf (Local Currency) , Affirmed (P)Baa2

....Multiple Seniority Shelf (Local Currency) , Affirmed (P)Baa1

....Senior Unsecured Commercial Paper (Local Currency) , Affirmed P-2

....US$30M Senior Unsecured Regular Bond/Debenture (Local Currency) , Affirmed Baa1

....US$200M 4.3% Senior Unsecured Regular Bond/Debenture (Local Currency) , Affirmed Baa1

....US$750M 6.085% Senior Unsecured Regular Bond/Debenture (Local Currency) , Affirmed Baa1

....US$750M 6.593% Senior Unsecured Regular Bond/Debenture (Local Currency) , Affirmed Baa1

....US$300M 4.3% Senior Unsecured Regular Bond/Debenture (Local Currency) , Affirmed Baa1

....US$300M 3.4% Senior Unsecured Regular Bond/Debenture (Local Currency) , Affirmed Baa1

....US$400M 3.85% Senior Unsecured Regular Bond/Debenture (Local Currency) , Affirmed Baa1

Issuer: American Water Works Company, Inc.

..Outlook Actions:

....Outlook, Changed To Positive From Stable

..Affirmations:

.... Issuer Rating (Local Currency) , Affirmed Baa1

Issuer: Berks County Industrial Development Auth., PA

....US$16.7M 6.748% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

Issuer: California Pollution Control Financing Auth.

....US$35M 5.4% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

Issuer: Clarion (County of) PA, I.D.A.

....US$13.165M 3.6% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$13.165M 3.6% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

Issuer: Clarion County Industrial Dev. Auth., PA

....US$13.165M 5.5% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

Issuer: Illinois Development Finance Authority

....US$23.325M 6.25% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

Issuer: Illinois Finance Authority

....US$24.86M Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

....US$25M 5.25% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

....US$28.5M 5.25% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

Issuer: Indiana Finance Authority

....US$25M Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

Issuer: Luzerne County Industrial Dev. Auth., PA

....US$80M 3.6% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$80M 3.6% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$30M 5.1% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$30M 5.1% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$19M 4.95% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$19M 4.95% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$80M 5.5% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

Issuer: Maricopa County Industrial Dev. Auth., AZ

....US$10.635M 5.25% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

Issuer: Montgomery County Industrial Dev Auth, PA

....US$23.8M 5.05% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$23.8M 5.05% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

Issuer: New Jersey Economic Development Authority

....US$20M 5.25% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$20M 5.25% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$35M 5.125% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$35M 5.125% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$35M 4.875% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$40M 4.7% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$134.225M 5.7% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$10.5M 5% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$15.3M 4.449% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$24.7M 5.099% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$110M 5.599% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

Issuer: New Jersey-American Water Company, Inc.

..Outlook Actions:

....Outlook, Remains Stable

..Affirmations:

.... Issuer Rating (Local Currency) , Affirmed A3

Issuer: Northampton County I.D.A., PA

....US$18.25M 6% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

....US$17.95M 6.1% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

Issuer: Owen (County of) KY

....US$26M Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

....US$45.39M 6.25% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

....US$26M 5.625% Senior Unsecured Revenue Bonds (Local Currency) , Affirmed Baa1

Issuer: Pennsylvania Economic Dev. Fin. Auth.

....US$80M Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$39.8M 4.8% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

....US$39.8M 4.8% Senior Secured Revenue Bonds (Local Currency) , Affirmed A1

Issuer: Pennsylvania-American Water Company

..Outlook Actions:

....Outlook, Remains Stable

..Affirmations:

.... Issuer Rating (Local Currency) , Affirmed A3

....US$33M 7.08% Senior Secured Regular Bond/Debenture (Local Currency) , Affirmed A1

....US$33M 7.08% Senior Secured Regular Bond/Debenture (Local Currency) , Affirmed A1

The principal methodology used in these ratings was Global Regulated Water Utilities published in December 2009. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Ryan T Wobbrock
Asst Vice President - Analyst
Infrastructure Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

William L. Hess
MD - Utilities
Infrastructure Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Changes American Water Works Outlook to Positive from Stable
No Related Data.
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