HOVNANIAN ENTERPRISES, INC. (OTCMKTS:HOVVB) Files An 8-K Entry into a Material Definitive Agreement
Item 1.01 Entry into a Material Definitive Agreement.
On December 10, 2019, Hovnanian Enterprises, Inc. (the “Company”) and K. Hovnanian Enterprises, Inc. (“K. Hovnanian”), a wholly owned subsidiary of the Company, consummated the Notes Exchange Offers (as defined below) and the Term Loan Exchange (as defined below). As a result of such transactions, K. Hovnanian issued or borrowed $240.0 million aggregate principal amount of debt and retired $327.9 million aggregate principal amount of debt.
New 2025 Notes Indenture
On December 10, 2019, the Company, K. Hovnanian and the other Guarantors (as defined below) party thereto entered into an Indenture with Wilmington Trust, National Association, as trustee and collateral agent (the “New 2025 Notes Indenture”), under which K. Hovnanian issued $158,502,000 aggregate principal amount of 10.000% Senior Secured 1.75 Lien Notes due 2025 (the “New 2025 Notes”) in exchange for the Old Notes (as defined below) of K. Hovnanian tendered by holders thereof in connection with its previously disclosed exchange offers for such notes (the “Notes Exchange Offers”) and accepted by K. Hovnanian for exchange. The notes exchanged in the Exchange Offers consisted of $23,152,000 aggregate principal amount of 10.000% Senior Secured Notes due 2022 (the “Old 2022 Notes”) and $141,708,000 aggregate principal amount of 10.500% Senior Secured Notes due 2024 (the “Old 2024 Notes” and, collectively with the Old 2022 Notes, the “Old Notes”).
The New 2025 Notes are guaranteed by the Company and substantially all of its subsidiaries, except for K. Hovnanian, its home mortgage subsidiaries, certain of its title insurance subsidiaries, joint ventures and subsidiaries holding interests in joint ventures (collectively, the “Guarantors”). The New 2025 Notes and the guarantees thereof will be secured by substantially all of the assets owned by K. Hovnanian and the Guarantors, subject to permitted liens and certain exceptions. In respect of K. Hovnanian’s other secured obligations, the liens securing the New 2025 Notes are on a parity with any secured obligations that are equal in priority with respect to the assets securing the New 2025 Notes, including the 1.75 Lien Term Loans (as defined below), are senior to the liens securing the Old Notes and any other future secured obligations that are junior in priority with respect to the assets securing the New 2025 Notes and are junior in priority with respect to the assets securing K. Hovnanian’s Senior Secured Revolving Credit Facility, 7.75% Senior Secured 1.125 Lien Notes due 2026, 10.5% Senior Secured 1.25 Lien Notes due 2026 and 11.25% Senior Secured 1.5 Lien Notes due 2026.
The New 2025 Notes bear interest at 10.000% per annum and mature on November 15, 2025. Interest on the New 2025 Notes is payable semi-annually on May 15 and November 15 of each year, beginning on May 15, 2020, to holders of record at the close of business on May 1 or November 1, as the case may be, immediately preceding each such interest payment date.
The New 2025 Notes Indenture contains restrictive covenants that limit, among other things, and in each case, subject to certain exceptions, the ability of the Company and certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness, pay dividends and make distributions on common and preferred stock, repay certain indebtedness prior to its respective stated maturity, repurchase common and preferred stock, make other restricted payments (including investments), sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The New 2025 Notes Indenture also contains customary events of default which would permit the holders of the New 2025 Notes to declare such New 2025 Notes to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the New 2025 Notes or other material indebtedness, the failure to satisfy covenants, the failure of the documents granting security for the New 2025 Notes to be in full force and effect, the failure of the liens on any material portion of the collateral securing the New 2025 Notes to be valid and perfected and specified events of bankruptcy and insolvency.
A copy of the New 2025 Notes Indenture, including the form of New 2025 Notes, is attached as Exhibit 4.1 to this Current Report on Form 8-K, and is incorporated herein by reference.
New 1.75 Lien Credit Agreement
On December 10, 2019, K. Hovnanian, the Company, the other Guarantors party thereto, Wilmington Trust, National Association, as administrative agent (the “Administrative Agent”), and affiliates of certain investment managers (the “Investors”), as lenders, entered into a credit agreement (the “1.75 Lien Credit Agreement”) providing for $81,498,000 of senior secured 1.75 lien term loans (the “1.75 Lien Term Loans”), that were borrowed by K. Hovnanian and guaranteed by the Guarantors in exchange (the “Term Loan Exchange”) for $162,996,000 of K. Hovnanian’s senior unsecured term loans due February 1, 2027 to an Exchange Agreement, dated December 10, 2019, by and among K. Hovnanian, the Company, the other Guarantors party thereto and the Investors. The 1.75 Lien Term Loans and the guarantees thereof will be secured on a pari passu basis with the New 2025 Notes by the same assets that secure the New 2025 Notes, subject to permitted liens and certain exceptions. The 1.75 Lien Term Loans will bear interest at a rate equal to 10.0% per annum and will mature on January 31, 2028.
The 1.75 Lien Credit Agreement contains representations and warranties and covenants that limit, among other things, and in each case, subject to certain exceptions, the ability of the Company and certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness, pay dividends and make distributions on common and preferred stock, repay certain indebtedness prior to its respective stated maturity, repurchase common and preferred stock, make other restricted payments, including investments, sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of their assets and enter into certain transactions with affiliates. The 1.75 Lien Credit Agreement also contains customary events of default which would permit the Administrative Agent thereunder to exercise remedies with respect to the collateral securing the 1.75 Lien Term Loans and declare the 1.75 Lien Term Loans to be immediately due and payable if not cured within applicable grace periods, including the failure to make timely payments on the 1.75 Lien Term Loans, including any interest and fees due in connection therewith, or other material indebtedness, the failure to satisfy covenants, the material inaccuracy of representations or warranties made, the failure of the documents granting security for the 1.75 Lien Term Loans to be in full force and effect, the failure of the liens on any material portion of the collateral securing the 1.75 Lien Term Loans to be valid and perfected, cross acceleration to other material indebtedness, and specified events of bankruptcy and insolvency.
A copy of the 1.75 Lien Credit Agreement is attached as Exhibit 10.1 to this Current Report on Form 8-K and is incorporated herein by reference.
Collateral Documents and Intercreditor Agreements
In connection with the execution of the 1.75 Lien Indenture and the 1.75 Lien Credit Agreement, K. Hovnanian and the Guarantors entered into various collateral documents, including security agreements and a pledge agreement, copies of which have been filed as Exhibits 10.2 through 10.4 to this Current Report on Form 8-K and are incorporated by reference herein.
In connection with the issuance of the New 2025 Notes, K. Hovnanian and the Guarantors entered into the Joinder, dated as of December 10, 2019 (the “New 2025 Notes Joinder”), to (a) the First Lien Intercreditor Agreement, dated as of October 31, 2019 (the “First Lien Intercreditor Agreement”), which governs the relative rights among the parties holding K. Hovnanian’s senior secured first priority secured debt (the “First Lien Debt”), and (b) the First Lien Collateral Agency Agreement, dated as of October 31, 2019 (the “First Lien Collateral Agency Agreement”), to which Wilmington Trust, National Association was appointed as the joint first lien collateral agent for perfection purposes with respect to the liens securing the First Lien Debt.
In addition, in connection with the borrowing of the 1.75 Lien Term Loans, K. Hovnanian and the Guarantors entered into the Joinder, dated as of December 10, 2019 (the “1.75 Lien Term Loan Joinder”), to the First Lien Intercreditor Agreement and the First Lien Collateral Agency Agreement.
Finally, in connection with the issuance of the New 2025 Notes and the borrowing of the 1.75 Lien Term Loans, K. Hovnanian and the Guarantors entered into the Joinder, dated as of December 10, 2019 (the “Junior ICA Joinder” and, together with the New 2025 Notes Joinder and the 1.75 Lien Term Loan Joinder, the “Joinders”), to the Second Amended and Restated Intercreditor Agreement, dated as of October 31, 2019, which governs the relative rights between the parties holding K. Hovnanian’s First Lien Debt, on the one hand, and the parties holding K. Hovnanian’s senior secured debt which has a lien priority junior to the liens securing the First Lien Debt, on the other hand.
The foregoing summary of the Joinders does not purport to be complete and is subject to, and qualified in its entirety by, reference to all the provisions of the Joinders, copies of which have been filed as Exhibits 10.5 through 10.7 to this Current Report on Form 8-K and are incorporated herein by reference.
Item 2.03 Creation of a Direct Financial Obligation or an Obligation Under an Off-Balance Sheet Arrangement of a Registrant.
The information set forth above under Item 1.01 is hereby incorporated by reference into this Item 2.03.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
HOVNANIAN ENTERPRISES INC Exhibit
EX-4.1 2 ex_167005.htm EXHIBIT 4.1 ex_167005.htm Exhibit 4.1 Execution Version K. HOVNANIAN ENTERPRISES,…
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About HOVNANIAN ENTERPRISES, INC. (OTCMKTS:HOVVB)
Hovnanian Enterprises, Inc. is a builder of residential homes. The Company designs, constructs, markets and sells single-family detached homes, attached townhomes and condominiums, urban infill and active lifestyle homes in planned residential developments. The Company has two distinct operations: homebuilding and financial services. Its homebuilding operations consist of six segments: Northeast: New Jersey and Pennsylvania; Mid-Atlantic: Delaware, Maryland, Virginia, Washington, District of Columbia, and West Virginia; Midwest: Illinois and Ohio; Southeast: Florida, Georgia and South Carolina; Southwest: Arizona and Texas, and West: California. Its financial services operations provide mortgage loans and title services to the customers of its homebuilding operations. The Company markets and builds homes for first-time buyers, first-time and second-time move-up buyers, luxury buyers, active lifestyle buyers and empty nesters.
