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Rating Action:

Moody's Upgrades American Water to A3

Global Credit Research - 07 Aug 2015

New York, August 07, 2015 -- Moody's Investors Service, ("Moody's") today upgraded the long-term ratings of American Water Works Company, Inc. (American Water, or AWK; A3 issuer rating) and its financing subsidiary American Water Capital Corp. (AWCC; A3 senior unsecured). Moody's also affirmed AWCC's commercial paper rating at P-2, along with affirming the ratings of New Jersey-American Water Company (NJ-AWC; see debt list below) and Pennsylvania-American Water Company (PAWC; see debt list below). The rating outlook for AWK, AWCC, NJ-AWC and PAWC is stable.

Upgrades:

..Issuer: American Water Capital Corp.

.... Issuer Rating, Upgraded to A3 from Baa1

....Senior Unsecured Regular Bond/Debenture, Upgraded to A3 from Baa1

..Issuer: American Water Works Company, Inc.

.... Issuer Rating, Upgraded to A3 from Baa1

..Issuer: Berks County Industrial Development Auth., PA (Supported by American Water Capital Corp.)

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

..Issuer: California Pollution Control Financing Auth. (Supported by American Water Capital Corp.)

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

..Issuer: Illinois Development Finance Authority (Supported by American Water Capital Corp.)

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

..Issuer: Illinois Finance Authority (Supported by American Water Capital Corp.)

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

..Issuer: Indiana Finance Authority (Supported by American Water Capital Corp.)

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

..Issuer: Maricopa County Industrial Dev. Auth., AZ (Supported by American Water Capital Corp.)

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

..Issuer: Northampton County I.D.A., PA (Supported by American Water Capital Corp.)

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

..Issuer: Owen (County of) KY (Supported by American Water Capital Corp.)

....Senior Unsecured Revenue Bonds, Upgraded to A3 from Baa1

Outlook Actions:

..Issuer: American Water Capital Corp.

....Outlook, Changed To Stable From Positive

..Issuer: American Water Works Company, Inc.

....Outlook, Changed To Stable From Positive

..Issuer: New Jersey-American Water Company, Inc.

....Outlook, Remains Stable

..Issuer: Pennsylvania-American Water Company

....Outlook, Remains Stable

Affirmations:

..Issuer: American Water Capital Corp.

....Senior Unsecured Commercial Paper, Affirmed P-2

..Issuer: Clarion (County of) PA, I.D.A. (Supported by Pennsylvania-American Water Company)

....Senior Secured Revenue Bonds, Affirmed A1

..Issuer: Clarion County Industrial Dev. Auth., PA (Supported by Pennsylvania-American Water Company)

....Senior Secured Revenue Bonds, Affirmed A1

..Issuer: Luzerne County Industrial Dev. Auth., PA (Supported by Pennsylvania-American Water Company)

....Senior Secured Revenue Bonds, Affirmed A1

..Issuer: Montgomery County Industrial Dev Auth, PA (Supported by Pennsylvania-American Water Company)

....Senior Secured Revenue Bonds, Affirmed A1

..Issuer: New Jersey Economic Development Authority (Supported by New Jersey-American Water Company, Inc.)

....Senior Secured Revenue Bonds, Affirmed A1

..Issuer: New Jersey-American Water Company, Inc.

.... Issuer Rating, Affirmed A3

..Issuer: Pennsylvania Economic Dev. Fin. Auth. (Supported by Pennsylvania-American Water Company)

....Senior Secured Revenue Bonds, Affirmed A1

..Issuer: Pennsylvania-American Water Company

.... Issuer Rating , Affirmed A3

....Senior Secured Regular Bond/Debenture, Affirmed A1

RATINGS RATIONALE

"American Water's rating upgrade reflects its improving financial profile, which we think is sustainable" said Assistant Vice President Ryan Wobbrock. "With a ratio of FFO to net debt around 17% and regulated cash flow diversity across 16 states, we are collapsing the rating of American Water with the rating its largest operating subsidiaries" added Wobbrock.

The upgrade for AWCC reflects the support agreement it maintains with AWK, as the company's primary financing vehicle.

AWK's A3 issuer rating reflects a strong financial profile, underpinned by low-risk water utilities that receive strong regulatory support and cost recovery provisions in most of its 16 state jurisdictions. AWK's financial profile continues to improve from a growing utility rate base, which contributed nearly 90% of consolidated revenue in 2014, and the strong margin contribution from unregulated water and wastewater services.

Although AWK is growing its unregulated business exposure, including the recent acquisition of Keystone Clearwater Solutions (not rated), we expect that the revenue contribution from all unregulated activities will remain around 15% of consolidated revenues over the next twelve to eighteen months.

"We view the nature of these unregulated operations to be within the core competencies of the company, but we still see them as non-core businesses with a higher business risk profile than the regulated water utilities." Wobbrock added.

Rating Outlook

The stable rating outlook for AWK and AWCC reflects our expectation for a ratio of consolidated FFO to Net Debt in the high-teens range on a sustained basis, with continued regulatory support of costs and investment, and unregulated operations remaining around 15% of consolidated revenue.

What Could Change the Rating - Up

The ratings for AWK and AWCC could be upgraded if FFO / Net Debt metrics were to remain over 20%, on a sustainable basis, and while maintaining its current business risk profile.

What Could Change the Rating - Down

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, or if unregulated exposure and business risk grew beyond our expectations, ratings could be pressured downward.

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.

The following information supplements Disclosure 10 ("Information Relating to Conflicts of Interest as required by Paragraph (a)(1)(ii)(J) of SEC Rule 17g-7") in the regulatory disclosures made at the ratings tab on the issuer/entity page on www.moodys.com for each credit rating:

Moody's was not paid for services other than determining a credit rating in the most recently ended fiscal year by the person that paid Moody's to determine this credit rating.

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 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 Upgrades American Water to A3
No Related Data.
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