Hovnanian gets $337.5 million refinancing, new commitments via GSO

By Marisa Wong

Morgantown, W.Va., Dec. 29 – Hovnanian Enterprises, Inc. announced it entered into financing commitments with GSO Capital Partners LP to refinance some of its debt securities maturing in 2019 and to purchase $25 million of its secured debt securities.

In connection with this agreement, the company will pay down some debt maturing in the next one to two years, which will be replaced with longer-term financing, most of which will not be due until 2026 and after, according to a press release.

In addition, GSO and some funds that it manages or advises have committed to provide Hovnanian with a new $125 million senior secured first-lien revolving credit facility.

The company intends to use $75 million of this revolver to refinance its current $75 million first priority secured term loan after that term loan’s no-call period expires in September 2018. The remaining portion of the new facility will be available for general corporate purposes and will give the company more financial flexibility.

“We continue to take steps to de-risk our balance sheet and enhance our financial flexibility in support of our long-term operations. We are pleased to enter into these financing and refinancing transactions with affiliates of GSO, the credit platform of Blackstone, one of the preeminent investment firms in the world,” Ara Hovnanian, president, chief executive officer and chairman of Hovnanian, commented in the press release.

Commitment details

On Dec. 28, Hovnanian and subsidiary K. Hovnanian Enterprises, Inc. entered into a commitment letter with GSO for a senior unsecured term loan credit facility.

GSO committed to lend K. Hovnanian $132.5 million of initial term loans on the settlement date of a concurrent exchange offer for K. Hovnanian’s 8% senior notes due 2019. Those initial term loans will be used to refinance K. Hovnanian’s 7% senior notes due 2019.

GSO also committed up to $80 million of delayed-draw term loans for refinancing K. Hovnanian’s 8% notes due 2019 that are not tendered in the exchange offer.

The term loans will bear interest at 5% per year and will mature on the ninth anniversary of the closing date.

The commitment letter also provides an up to $125 million senior secured first-lien revolving credit facility.

The senior secured first priority revolving loans will be used to fund the repayment of K. Hovnanian’s $75 million senior secured term loan and for general corporate purposes.

Revolving loans will bear interest at a rate equal to the volume weighted average yield of K. Hovnanian’s 10½% senior secured notes due 2024 minus 50 basis points.

Availability under the revolver will terminate on Dec. 28, 2019, and any outstanding secured loans on that date will convert to secured term loans maturing on Dec. 28, 2022.

In addition, under the commitment letter, GSO has committed to purchase from K. Hovnanian $25 million of additional 10½% senior secured notes due 2024 on Jan. 15, 2019.

The notes will be sold at a price that would imply a yield equal to the volume weighted average yield to maturity for the 2024 notes minus 50 bps.

The additional notes will have the same terms as the company’s existing 2024 notes and will vote together and be treated as a single class with the existing notes.

Hovnanian Enterprises is a homebuilder based in Red Bank, N.J.

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