S&P rates Hovnanian notes B+, B

S&P said it assigned its B+ issue-level and 1 recovery ratings to Hovnanian Enterprises Inc.'s $225 million of 8% senior secured 1.125-lien notes due 2028 and its B issue-level and 2 recovery ratings to the company's $430 million of 11¾% senior secured 1.25-lien notes due 2029. The 1 recovery rating indicates very high (90%-100%; rounded estimate: 95%) recovery in default. The 2 recovery rating indicates substantial (70%-90%; rounded estimate: 75%) recovery in default. The notes will be issued through subsidiary K. Hovnanian Enterprises Inc.

At the same time, S&P lowered the issue-level rating on Hovnanian's outstanding 1.25-lien notes to B from B+ due to their diminished asset coverage from the agency’s estimated enterprise recovery value.

The proceeds are expected to redeem its outstanding secured debt, including its 1.125-lien notes due 2026, 1.25-lien notes due 2026, 1.5-lien notes, and 10% senior secured 1.75-lien notes due 2026. $91 million of Hovnanian's 13½% senior unsecured notes due 2026, $81 million of its unrated 10% 1.75-lien term loan due 2028, $40 million of 5% senior unsecured term loan due 2027, and $90 million of 5% senior unsecured noted due 2040 will remain outstanding following the close of the transaction.

“Although we view the refinancing and the extension of its average maturity positively, our B- issuer credit rating and stable outlook on Hovnanian Enterprises Inc. are unchanged,” S&P said in a press release.

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