Hovnanian cuts debt by 40% since 2020; refi strengthens balance sheet

By Devika Patel

Knoxville, Tenn., Dec. 7 – Hovnanian Enterprises, Inc. conducted several refinancing transactions last quarter, which improved its maturity profile, extended the maturity of its revolver and left the company with its highest liquidity level since 2009.

The company has reduced its total debt by $704 million, or 40.2%, since the beginning of fiscal 2020.

During the quarter, the company sold $225 million of 8% senior secured 1.125 lien notes due 2028 and $430 million of 11¾% senior secured 1.25 lien notes due 2029 in a private placement.

In August, Hovnanian redeemed $100 million of its 7¾% senior secured 1.125 lien notes due 2026 at a purchase price of $102.2 million, which included unpaid interest, and, in September, Hovnanian repurchased $45 million of its 10% senior secured 1.75 lien notes due 2025 at a purchase price of $46.7 million, which included unpaid interest.

In November, in conjunction with the above debt refinancing, the company retired an additional $113.5 million of its 10% senior secured 1.75 lien notes due 2025, at par plus unpaid interest, two years ahead of maturity.

The company also entered into a third amendment to its $125 million secured revolving credit facility, which, among other things, extended the final maturity by two years to June 30, 2026.

This refinancing increased the maturity runway, refinanced all of the company’s secured debt maturing in fiscal 2026, extended these maturities until the fourth quarters of fiscal 2028 and fiscal 2029 and also extended the revolver maturity, which was the nearest term maturity.

“We ended the year with $564 million of total liquidity, which is more than twice the upper end of our target range,” chairman, president and chief executive officer Ara K. Hovnanian stated in a Tuesday press release.

“We refinanced over $600 million of secured debt, including $114 million from redemptions that occurred after year-end, which extended the maturities from the first and second quarters of fiscal 2026 until the fourth quarters of fiscal 2028 and fiscal 2029.

“Our excess liquidity will allow us to further grow our land position and thus increase our community count, which should result in higher levels of profitability in future years.

“At the same time, our strong cash flow allows us to continue to strengthen our balance sheet,” Hovnanian stated.

The company reported its highest liquidity level since 2009 last quarter, and the refinancings have significantly improved the balance sheet.

“After retiring early $100 million of debt in August, we ended the quarter with $564 million of liquidity, more than twice as much as the high end of our targeted liquidity range,” chief financial officer and treasurer Brad O’Connor said on the company’s fourth quarter and year ended Oct. 31 earnings conference call on Tuesday.

“This is the highest level of liquidity we have reported since the third quarter of 2009, when we had a much larger revolver.

“After the quarter ended, we used excess cash for early retirement of $114 million of bonds.

“We took a significant step to improving our maturity ladder during the quarter.

“We refinanced over $600 million of secured debt that was to come due during the first and second quarters of fiscal 2026.

“The new debt is made up of two tranches.

“The first is $225 million of 8% secured debt that comes due in the fourth quarter of 2028, and the second is $430 million of 11¾% secured debt that comes due in the fourth quarter of 2029.

“Not only did we extend the maturities on this debt, but we did so with only a nominal increase in annual interest incurred,” O’Connor said.

“Furthermore, and as important, we also extended the maturity on our revolver by two years until the third quarter of fiscal 2026.

“The latest debt reduction and refinancing shows that we remain committed to strengthening our balance sheet.

“Including the redemptions we made in fiscal 2023, we reduced our net debt by $844 million since the beginning of fiscal 2020.

“Our balance sheet has improved significantly over the last five years, and we expect to continue to make significant progress moving forward,” O’Connor said.

Total revenues were $887 million in the fourth quarter of fiscal 2023, compared to $886.8 million in the same quarter of the prior year. For the year ended Oct. 31, 2023, total revenues were $2.76 billion, compared to $2.92 billion in fiscal 2022.

Adjusted EBITDA increased 25.5% to $181.2 million for the fourth quarter of fiscal 2023, compared to $144.4 million for the fourth quarter of the prior year. For fiscal 2023, adjusted EBITDA was $426.8 million, compared to $478.7 million in the prior year.

Total liquidity as of Oct. 31, 2023 was $564.2 million, the highest level since the third quarter of fiscal 2009 and significantly above the company’s targeted liquidity range of $170 million to $245 million.

“Needless to say, we’re pleased with our performance for the full year,” Hovnanian said on the call.

“If you go back to this time last year, when sales in the housing market stalled due to a quick climb in mortgage rates, we couldn’t have imagined our performance would be this solid this year.

“By any measure, fiscal 2023 was a good year,” Hovnanian said.

Hovnanian is a Matawan, N.J., homebuilder.

© 2015 Prospect News.
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