Hovnanian offers 3% notes due 2047 in exchange for 10%, 10½% notes

New York, April 6 – Hovnanian Enterprises, Inc. said that its K. Hovnanian Enterprises, Inc. subsidiary has begun an exchange offer in which it is offering new 3% senior notes due 2047 for all of its $440 million of 10% senior secured notes due 2022 and $400 million of 10½% senior secured notes due 2024.

For each $1,000 principal amount of existing notes, Hovnanian is offering $1,250 principal amount of new notes, according to a news release.

The company will also pay accrued interest up to but excluding the settlement date.

If Hovnanian issues notes on the early settlement date, any new notes issued on the final settlement date will have pre-issuance interest in the form of an embedded entitlement to interest for the period from the early settlement date up to but excluding the final settlement date. This pre-issuance interest will reduce the cash interest payable on the final settlement date.

The amount of new notes to be issued to any holder will be rounded down to $2,000 and multiples of $1,000 above that. No cash will be paid as a result of rounding.

The early tender deadline is 5 p.m. ET on April 19 and the exchange ends at 11:59 p.m. ET on May 3.

Early settlement is planned for the second business day after the early deadline and final settlement for the business day following expiration.

Completion of the exchange is subject to conditions including the tender of at least $150 million of notes by the early deadline.

Hovnanian is also soliciting consents to amend the 10% notes to eliminate the restrictions on the issuer’s ability to purchase, repurchase, redeem, acquire or retire its 8% senior notes due 2019 and refinancing or replacement debt for those notes and also on refinancing or replacement debt for its 7% senior notes due 2019, including the 5% senior notes due 2040, 13½% senior notes due 2026 and unsecured term loan facility.

Holders may not tender the 10% notes without delivering consents or deliver consents without tendering.

The new 3% notes will mature on April 15, 2047 and will have call features.

Hovnanian will save $10 million a year in cash interest at the $150 million minimum participation level, according to a presentation filed with the Securities and Exchange Commission.

At that level of uptake, the company will record a $102 million gain on the early extinguishment of debt.

The exchange will improve Hovnanian’s capital structure through “long term, attractively priced capital,” create secured debt capacity and eliminate a restrictive covenant on the use of cash, the presentation stated.

Global Bondholder Services Corp. (866 470-4300 or 212 430-3774) is exchange agent, tabulation agent and information agent.

The exchange is only open to eligible holders and is being conducted under Rule 144A and outside the United States.

Hovnanian is a Matawan, N.J. homebuilder.

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