Water utility Aqua America Inc. (WTR) 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.
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 capital needs.
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 utilities like American Water Works Company, Inc. (AWK), Connecticut Water Service Inc. (CTWS) and Middlesex Water Co. (MSEX) are investing in its infrastructure development among others.
Aqua America currently retains a Zacks Rank #3 (Hold).