Moody's assigns B3 to Hovnanian notes

Moody's Investors Service said it assigned B3 ratings to K. Hovnanian Enterprises, Inc.'s new backed senior secured notes including $225 million of 8% 1.125 lien notes due 2028 and $430 million of 11¾% 1.25 lien notes due 2029.

The agency also affirmed Hovnanian Enterprises, Inc.'s B3 corporate family rating, B3-PD probability of default rating, Caa3 preferred stock rating, and the ratings on K. Hovnanian's existing 1.125 lien and 1.25 lien backed senior secured notes at B3, as well as the ratings on its backed senior unsecured notes and backed senior unsecured term loans at Caa2. The speculative grade liquidity rating remains unchanged at SGL-3.

In a private placement refinancing transaction, Hovnanian plans to raise $655 million of new debt in the form of 1.125 lien notes due 2028 and 1.25 lien notes due 2029, the proceeds of which will be used to retire $653 million of the company's outstanding 1.125 lien, 1.25 lien, 1.5 lien and 1.75 lien secured notes due 2026. Hovnanian will retire that debt through a call redemption issued on Monday to be completed by Oct. 5, except for $159 million of 1.75 lien senior notes due 2025, which will be redeemed on Nov. 16. At the same time, the company entered an amendment to extend the maturity of its $125 million first-lien revolving credit facility by two years to June 2026.

"The refinancing transaction is credit positive as it improves Hovnanian's liquidity position by extending debt maturity profile to 2028 and 2029 from 2026 for over $650 million of debt as well as extends access to the company's $125 million revolving credit facility until 2026 from 2024. However, the transaction results in an increase of an annual interest expense of about $1 million," said Natalia Gluschuk, a Moody's vice president and senior credit officer, in a press release.

The outlook is stable.

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