Hovnanian mulling ways to improve balance sheet after exchange offers

By Devika Patel

Knoxville, Tenn., Dec. 5 – Hovnanian Enterprises, Inc. plans to keep evaluating its debt to find ways to strengthen the balance sheet, even after completing several exchange offers and refinancing transactions in the last quarter.

“We successfully exchanged or refinanced over $800 million of debt [in the fourth quarter],” executive vice president and chief financial officer J. Larry Sorsby said on the company’s fourth quarter and year ended Oct. 31 earnings conference call on Thursday.

“We eliminated all maturities until 2022 and pushed out over 50% of the debt coming due in 2022 and 2024.

“In summary, we refinanced $270 million of debt maturing in 2020 and 2021, exchanged $435 million of debt that was coming due in 2022 and 2024, extended all of those maturities to 2026.

“We also refinanced our $125 million revolving credit facility that was set to convert to a term loan later this month into a new 7¾% revolver maturing in 2023,” he said.

These financing activities helped the company extend its debt maturities, simplify its capital structure and enabled management to invest in land rather than use liquidity to deal with near-term maturities.

“The financing transactions accomplished three objectives,” Sorsby said.

“Number one, it extended our debt maturity runway.

“Number two, it simplified our capital structure into a single collateral pool for the benefit of all of our secured holders and number three, it helps maintain our liquidity and allows us to continue to invest in land rather than use our liquidity to deal with near-term debt maturities,” he said.

The company is planning more exchanges on its 2022 and 2024 notes and will continue to consider other ways to strengthen its balance sheet.

“Additionally, we have a pending exchange offer that is focused both on pushing out a portion of our remaining 2022 and 2024 maturities and capturing discounts on the exchange of certain debt instruments.

“We will continue to analyze and evaluate our capital structure and explore transactions to further strengthen our balance sheet,” he said.

Total liquidity at the end of the fourth quarter was $275.9 million. Total liquidity is comprised of $131 million of cash and cash equivalents, $19.9 million of restricted cash required to collateralize letters of credit and $125 million of availability under the senior secured revolving credit facility as of Oct. 31.

On Oct. 31, Hovnanian Enterprises and subsidiary K. Hovnanian Enterprises, Inc. exchanged or refinanced $221 million of 10% senior secured notes due 2022 and $213.6 million of its 10½% 1.25-lien senior secured notes due 2024 into $350 million of new 7¾% 1.125-lien senior secured notes due 2026 and/or cash and $103.1 million of new 11¼% 1.5-lien senior secured notes due 2026.

Specifically, the company completed private exchanges of

• $221,006,000 of its 10% notes and $113,956,000 of its 10½% notes for a portion of the new 1.125-lien notes and/or cash; and

• $99,653,000 of its 10½% notes for $103,141,000 of new 11¼% senior secured 1.5-lien notes due 2026.

K. Hovnanian also issued $282,322,000 of 10½% senior secured 1.25-lien notes due 2026. Proceeds from these notes were used to refinance its 9½% senior secured notes due 2020, 2% senior secured notes due 2021 and 5% senior secured notes due 2021.

Also on Oct. 31, Hovnanian Enterprises and K. Hovnanian Enterprises got up to $125 million in senior secured first-lien revolving loans.

The revolver will be used for general corporate purposes.

Availability will terminate on Dec. 28, 2022, and the secured loans will bear interest at a rate per annum equal to 7.75%.

Wilmington Trust, NA is the administrative agent.

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

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