Aqua America Inc.
) announced that its subsidiary Aqua Pennsylvania sold $75
million of first mortgage bonds in three tranches. The decision
to sell bonds was perfectly timed given the strong credit rating
of the company and the prevailing low interest rate environment.
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The first series consists of $25 million bonds yielding 3.94%
interest per year and maturing after 18 years; the second series
consists of $25 million bonds yielding 4.61% interest per year
and maturing after 32 years; and the third series also consists
of $25 million bonds yielding 4.62% interest per year and
maturing after 33 years.
Acqa America intends to utilize the proceeds from this issue to
repay higher interest bearing bonds, repay shot-term debts and
also pay for the cost of issuance of the bonds.
Most importantly the average interest cost of these bonds will be
4.39%, lower than the interest cost of 5.04% on existing
long-term debts. This will definitely lower interest expenses for
the company given the maturity period of these news bonds ranges
from 18 years to 33 years.
We believe interest cost savings over the years will generate
additional funds for the company that could be ploughed back for
the development and maintenance of its aging water systems. Acqa
America is performing well and earning more than its capital
needs. Hence, the company can afford shareholder friendly moves,
like the dividend hike made in May this year, after meeting its
In May, Acqa America increased its quarterly dividend rate by 9%
and at the same time approved of a 5-for-4 stock split.
As per a U.S. Environmental Protection Agency report, the U.S.
utility providers need to invest $384 billion through 2030 for
restoring and improving the drinking water system. The water
American Water Works Company, Inc.
Connecticut Water Service Inc.
Middlesex Water Co.
) are investing in its infrastructure development among others.
Aqua America currently retains a Zacks Rank #3 (Hold).