H2O America Prices Equity Units With 7.750% Annual Yield and $315.3 Million in Net Proceeds
Key Facts
H2O America priced an offering of equity units with a gross annual distribution rate of 7.750% and expects net proceeds of about $315.3 million before any exercise of the overallotment option. The company said the proceeds will be used for general purposes, which may include acquisitions, capital expenditures or debt repayment. The pricing follows the announcement of third-quarter results, which showed year-over-year declines in net income and earnings per share alongside growth in operating revenue. The unit structure gives investors exposure combining payments tied to notes and a contract to purchase shares in the future. The company intends to seek a Nasdaq listing for the units, with trading expected to begin within 30 days of the initial issuance, subject to approval.
Each unit initially consists of a future share-purchase contract and an undivided ownership interest of 1/20 in $1,000 in principal amount of senior remarketable notes bearing interest at 5.300% and maturing in 2031. The gross annual distribution rate is 7.750%, comprising the notes’ 5.300% interest and contract adjustment payments of 2.450%. The distribution makes the stated yield a combination of note payments and payments tied to the share-purchase contract. A unit does not represent a single common share at issuance, as its structure includes a contractual obligation to purchase a variable number of company shares. The company said share purchases under the contracts must be completed no later than November 1, 2029.
The company’s statement set the reference price for the share-purchase contracts at $58.5686 per share and the threshold appreciation price at $68.8231, a premium of about 17.5% to the reference price. EL7’s provided data show the company’s shares closed at $58.57 on October 29, the reference price in the statement rounded to two decimal places. The contract means future settlement is linked to a variable number of shares, according to the offering terms and share price, rather than simply holding units with fixed components. The statement did not cite a high or low for the stock’s trading session. The company granted underwriters an option to buy up to 975,000 additional units, with an additional aggregate principal amount of $48.75 million, to cover overallotments.
The company estimates net proceeds of about $315.3 million from the base offering, rising to about $362.5 million if underwriters exercise the additional option in full. It said potential uses include acquisitions, capital expenditures and debt repayment, without allocating a specific amount to any item in the statement. The financing follows the company’s completion of its acquisition of Quadvest on October 1 for $542.7 million in cash. Quadvest had 62,200 active connections on September 30, while contracted connections and those under development exceeded 98,000. The company also expected to complete the purchase of a wastewater treatment plant and collection systems owned by Cibolo Valley on November 2; the assets serve more than 1,500 sewer connections.
H2O America reported third-quarter GAAP net income of $43.0 million, down 5% from $45.1 million in the same period a year earlier. Diluted earnings per share fell to $0.99 from $1.27. Operating revenue, by contrast, rose 4% to $250.2 million from $240.6 million. The company attributed the increase mainly to $16.2 million from rate increases, which partially offset a $4.1 million decline in customer consumption and a $2.6 million decrease in regulatory mechanism adjustments. Chief Executive Andrew Walters said third-quarter results put the company in a position to achieve its 2026 annual guidance and affirmed its commitment to long-term financial goals.
In the U.S. economic backdrop, real gross domestic product growth accelerated to an annual rate of 3.4% in the third quarter of 2026, compared with 2.2% in the second quarter, according to the Bureau of Economic Analysis’ advance estimate. Increases in investment and consumer and government spending contributed to growth, while a decline in exports weighed on it. The GDP data provide a broader economic backdrop for the offering, without the company linking economic growth to its pricing decision. The second estimate of third-quarter GDP is scheduled for release on November 25, 2026, at 8:30 a.m. Eastern time. The unit offering is expected to close on November 3, subject to customary closing conditions, with trading expected to begin within 30 days of the initial issuance after Nasdaq approval.