Hovnanian Enterprises, Inc. (NYSE:HOV) (the “Company”) announced
today that its wholly-owned subsidiary, K. Hovnanian Enterprises,
Inc. (the “Issuer”), has commenced a private offer to exchange (the
“Exchange Offer”) up to $185,000,000 aggregate principal amount (as
the same may be increased, the “Maximum Tender Amount”) of the
Issuer’s outstanding 8.000% Senior Notes due 2019 (the “Existing
Notes”) for (1) cash, (2) its newly issued 13.5% Senior Notes due
2026 (the “New 2026 Notes”) and (3) its newly issued 5.0% Senior
Notes due 2040 (the “New 2040 Notes” and, together with the New
2026 Notes, the “New Notes”) on the terms and subject to the
conditions set forth in a Confidential Offering Memorandum, dated
December 28, 2017 (as it may be amended or supplemented from time
to time, the “Offering Memorandum”), and in the related Letter of
Transmittal (as it may be amended or supplemented from time to
time, the “Letter of Transmittal” and, collectively with the
Offering Memorandum, the “Exchange Offer Documents”).
The Exchange Offer will expire at 11:59 p.m.,
New York City time, on January 29, 2018, unless extended or earlier
terminated (such time and date, as the same may be extended, the
“Expiration Time”). Holders of the Existing Notes must validly
tender their Existing Notes at or before the Expiration Time in
order to be eligible to receive the Exchange Consideration (as
defined below). Existing Notes tendered may be withdrawn at any
time prior to 5:00 p.m., New York City time on January 29, 2018,
unless extended (as the same may be extended, the “Withdrawal
Deadline”), but not thereafter, unless required by applicable
law.
In exchange for each $1,000 principal amount of
Existing Notes and integral multiples thereof validly tendered (and
not validly withdrawn prior to the Withdrawal Deadline) prior to
the Expiration Time, and accepted by us in an amount not to exceed
the Maximum Tender Amount, participating holders of Existing Notes
will receive (1) an amount of cash (the “Cash Amount”) equal to the
product of (a) $1,000 multiplied by (b) the quotient of (i)
$26,000,000 divided by (ii) the total principal amount of the
Existing Notes validly tendered in connection with the Exchange
Offer, (2) an additional amount in cash equal to the product of (a)
the Cash Amount multiplied by (b) 0.02000, (3) the principal amount
of New 2026 Notes equal to the product of (a) the sum of (i) $1,000
minus (ii) the Cash Amount multiplied by (b) 0.62827 and (4) the
principal amount of New 2040 Notes equal to the product of (a) the
sum of (i) $1,000 minus (ii) the Cash Amount multiplied by (b)
0.62500 (the “Exchange Consideration”).
An aggregate of $26,000,000 in principal amount
of the Existing Notes that are validly tendered (and not validly
withdrawn prior to the Withdrawal Deadline) will be purchased (the
“Purchased 8.0% Notes”) by K. Hovnanian at Sunrise Trail III, LLC,
one of the Issuer’s wholly-owned subsidiaries (the “Subsidiary
Purchaser” and, together with the Issuer, the “Hovnanian
Parties”). The Subsidiary Purchaser will be responsible for
the cash component of the Exchange Consideration to be paid in
connection with the Exchange Offer.
Holders of Existing Notes validly tendered (and
not validly withdrawn prior to the Withdrawal Deadline) and
accepted by us will not be entitled to receive accrued and unpaid
interest, if any, on their exchanged Existing Notes. Holders shall
only be entitled to receive the Exchange Consideration for all
Existing Notes validly tendered by such holder prior to the
Expiration Time (and not validly withdrawn prior to the Withdrawal
Deadline) and accepted by us. The aggregate Exchange Consideration
in respect of each participating holder for all Existing Notes
validly tendered (and not validly withdrawn prior to the Withdrawal
Deadline) and accepted by us will be rounded down, if necessary, to
$2,000 or the nearest whole multiple of $1,000 in excess thereof.
This rounded amount will be the principal amount of New Notes you
will receive as part of your Exchange Consideration, and no
additional cash will be paid in lieu of any principal amount of New
Notes not received as a result of such rounding down. Any
such adjustment will apply to all Existing Notes tendered and
accepted in the Exchange Offer.
Subject to the terms and conditions of the
Exchange Offer being satisfied or waived (if applicable), the
Hovnanian Parties will, after the Expiration Time, accept for
exchange all Existing Notes validly tendered prior to the
Expiration Time (and not validly withdrawn before the Withdrawal
Deadline) in an amount not to exceed the Maximum Tender Amount. If
Existing Notes are validly tendered (and not validly withdrawn
prior to the Withdrawal Deadline) prior to the Expiration Time in
an aggregate principal amount in excess of the Maximum Tender
Amount, such tendered Existing Notes will be subject to proration
and only an aggregate principal amount of Existing Notes equal to
the Maximum Tender Amount will be accepted for exchange on a pro
rata basis. The Hovnanian Parties expect to pay the Exchange
Consideration for the Existing Notes and issue the New Notes within
three business days of the Expiration Time (the “Settlement
Date”).
In connection with the Exchange Offer, the
Company and the Issuer also entered into a commitment letter (the
“Commitment Letter”) with GSO Capital Partners LP (“GSO”), on its
behalf and on behalf of certain funds managed, advised or
sub-advised by it (collectively, the “GSO Commitment Parties”).
Pursuant to the Commitment Letter, the GSO Commitment Parties
shall, among other things, provide the principal amount of each of
the following credit facilities: (i) a senior unsecured term loan
credit facility to be borrowed by the Issuer, pursuant to which the
GSO Commitment Parties have committed to lend the Issuer $132.5
million of initial term loans on the settlement date of the
Exchange Offer for purposes of refinancing the Issuer’s 7.000%
Senior Notes due 2019, and up to $80.0 million of delayed draw term
loans for purposes of redeeming or repaying the Issuer’s Existing
Notes, at or prior to maturity, that do not participate in the
Exchange Offer, in each case upon the terms and subject to the
conditions set forth therein, and (ii) a senior secured first lien
revolving credit facility to be borrowed by the Issuer, pursuant to
which the GSO Commitment Parties have committed to lend to the
Issuer up to $125.0 million of senior secured first priority
revolving loans to fund the repayment of the Issuer’s $75.0 million
senior secured term loan facility and for other general corporate
purposes, upon the terms and subject to the conditions set forth
therein. In addition, pursuant to the Commitment Letter, the GSO
Commitment Parties have committed to purchase, and the Issuer has
agreed to issue and sell, on January 15, 2019 (or such later date
within five business days as mutually agreed by the parties working
in good faith), $25.0 million in aggregate principal amount of the
Issuer’s 10.500% Senior Secured Notes due 2024 (the “10.500%
Notes”), upon the terms and subject to the conditions set forth
therein (collectively, the “Financing Arrangements”).
The Hovnanian Parties’ obligation to accept for
exchange any Existing Notes validly tendered and not validly
withdrawn before the Withdrawal Deadline pursuant to the Exchange
Offer is conditioned upon the satisfaction or, if applicable,
waiver of certain conditions, which are more fully described in the
Offering Memorandum, including, among others, (1) entry into and
effectiveness of the Financing Arrangements, (2) at least $140.0
million in aggregate principal amount of the Existing Notes having
been validly tendered (and not validly withdrawn prior to the
Withdrawal Deadline) by holders thereof, including GSO, prior to
the Expiration Time and accepted by us, (3) the Support Agreement
(as defined below) being in full force and effect, (4) receipt of
consents from a majority of the outstanding principal amount of
each the Issuer’s 10.000% Senior Secured Notes due 2022 (the
“10.000% Notes”) and the 10.500% Notes to certain proposed
amendments to the indenture governing the 10.000% Notes and the
10.500% Notes and (5) certain other conditions, including the
absence of certain specified judicial or regulatory outcomes
regarding the Exchange Offer. Documents relating to the
Exchange Offer will only be distributed to holders of Existing
Notes who complete a letter of eligibility confirming that they are
within the category of holders that are eligible to participate in
this private offer. To access the letter of eligibility,
click on the following link:
http://gbsc-usa.com/eligibility/khov.
On December 28, 2017, the Company, the Issuer
and the Subsidiary Purchaser also entered into a support agreement
with certain of the GSO Commitment Parties (the “Support
Agreement”), pursuant to which such GSO Commitment Parties have
agreed to participate in the Exchange Offer. Pursuant to the terms
of the Support Agreement, such GSO Commitment Parties have agreed
to tender (i) $106,378,000 in aggregate principal amount of the
Existing Notes owned on the date of the Support Agreement, (ii)
$20,440,000 in aggregate principal amount of the Existing Notes
beneficially owned on the date of the Support Agreement that are
subject to a repurchase agreement and (iii) any Existing Notes
acquired after such date. The obligations of such GSO
Commitment Parties to tender their Existing Notes in the Exchange
Offer are generally subject to the terms and conditions set forth
in the Support Agreement, as more fully described therein, which
include requirements for the Issuer to consummate the Exchange
Offer upon the terms and conditions set forth in the Exchange Offer
Documents and limitations on the Company and the Issuer from making
certain material modifications, amendments or waivers to the terms
and conditions of the Exchange Offer and the Exchange Offer
Documents without such GSO Commitment Parties’ prior consent.
The obligations under the New Notes will be
fully and unconditionally guaranteed by the Company, and
substantially all of its subsidiaries, other than the issuer of the
New Notes, the Subsidiary Purchaser, the Company’s home mortgage
subsidiaries, certain of its title insurance subsidiaries, joint
ventures, subsidiaries holding interests in joint ventures and its
foreign subsidiary.
The New 2026 Notes will bear interest at the
rate of 13.5% per year, accruing from the date of issuance.
Interest on the New 2026 Notes will be payable on February 1 and
August 1 of each year, beginning on August 1, 2018. The New 2026
Notes will mature on February 1, 2026. The New 2040 Notes will bear
interest at the rate of 5.0% per year, accruing from the date of
issuance. Interest on the New 2040 Notes will be payable on
February 1 and August 1 of each year, beginning on August 1, 2018.
The New 2040 Notes will mature on February 1, 2040. The indenture
governing the New Notes contains limitations on actions with
respect to the Purchased 8.0% Notes, including that, (A) the Issuer
and the guarantors of the New Notes shall not, (i) prior to June 6,
2018, redeem, cancel or otherwise retire, purchase or acquire any
Purchased 8.0% Notes or (ii) make any interest payments on the
Purchased 8.0% Notes prior to their stated maturity, and (B) the
Issuer and the guarantors of the New Notes shall not, and shall not
permit any of their subsidiaries to, (i) sell, transfer, convey,
lease or otherwise dispose of any Purchased 8.0% Notes other than
to any subsidiary of the Company that is not the Issuer or a
guarantor of the New Notes or (ii) amend, supplement or otherwise
modify the Purchased 8.0% Notes or the indenture under which they
were issued with respect to the Purchased 8.0% Notes, subject to
certain exceptions. In addition, the indenture governing the New
Notes will provide that notwithstanding the above, at all times on
or after June 6, 2018 and prior to the stated maturity of the
Purchased 8.0% Notes, the Subsidiary Purchaser shall continue to
own and hold at least the minimum denomination thereof.
We may redeem some or all of the New Notes on or
after the times, and at the redemption prices, specified in the
Offering Memorandum.
Global Bondholder Services Corporation is
serving as the exchange agent and information agent for the
Exchange Offer. Any question regarding procedures for tendering
Existing Notes and requests for copies of the Exchange Offer
Documents may be directed to Global Bondholder Services by phone at
866-470-4300 (toll free) or 212-430-3774.
This press release is neither an offer to
purchase or sell nor a solicitation of an offer to sell or buy the
Existing Notes, the New Notes or any other securities of the Issuer
or the Company. This press release also is not a solicitation of
consents to the proposed amendments to the indenture governing the
10.000% Notes and the 10.500% Notes. The Exchange Offer is being
made solely on the terms and subject to the conditions set forth in
the Exchange Offer Documents and the information in this press
release is qualified by reference to such Exchange Offer
Documents.
The Exchange Offer is being made within the
United States only to persons reasonably believed to be “qualified
institutional buyers” pursuant to Rule 144A under the Securities
Act of 1933, as amended (the “Securities Act”), and outside the
United States to non-U.S. investors. The New Notes have not
been and will not be registered under the Securities Act, or any
state securities laws. The New Notes may not be offered or sold
within the United States or to U.S. persons, except pursuant to an
exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable
state securities laws.
About Hovnanian Enterprises
Hovnanian Enterprises, Inc., founded in 1959 by
Kevork S. Hovnanian, is headquartered in Red Bank, New Jersey. The
Company is one of the nation’s largest homebuilders with operations
in Arizona, California, Delaware, Florida, Georgia, Illinois,
Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas,
Virginia, Washington, D.C. and West Virginia. The Company’s homes
are marketed and sold under the trade names K. Hovnanian® Homes,
Brighton Homes® and Parkwood Builders. As the developer of K.
Hovnanian’s® Four Seasons communities, the Company is also one of
the nation’s largest builders of active lifestyle communities.
Forward-Looking Statements
All statements in this press release that are
not historical facts should be considered as “Forward-Looking
Statements”. Such statements involve known and unknown risks,
uncertainties and other factors that may cause actual results,
performance or achievements of the Company to be materially
different from any future results, performance or achievements
expressed or implied by the forward-looking statements. Although we
believe that our plans, intentions and expectations reflected in,
or suggested by, such forward-looking statements are reasonable, we
can give no assurance that such plans, intentions or expectations
will be achieved. By their nature, forward-looking statements: (i)
speak only as of the date they are made, (ii) are not guarantees of
future performance or results and (iii) are subject to risks,
uncertainties and assumptions that are difficult to predict or
quantify. Therefore, actual results could differ materially and
adversely from those forward-looking statements as a result of a
variety of factors. Such risks, uncertainties and other factors
include, but are not limited to, (1) changes in general and local
economic, industry and business conditions and impacts of a
sustained homebuilding downturn; (2) adverse weather and other
environmental conditions and natural disasters; (3) levels of
indebtedness and restrictions on the Company’s operations and
activities imposed by the agreements governing the Company’s
outstanding indebtedness; (4) the Company’s sources of liquidity;
(5) changes in credit ratings; (6) changes in market conditions and
seasonality of the Company’s business; (7) the availability and
cost of suitable land and improved lots; (8) shortages in, and
price fluctuations of, raw materials and labor; (9) regional and
local economic factors, including dependency on certain sectors of
the economy, and employment levels affecting home prices and sales
activity in the markets where the Company builds homes; (10)
fluctuations in interest rates and the availability of mortgage
financing; (11) changes in tax laws affecting the after-tax costs
of owning a home; (12) operations through joint ventures with third
parties; (13) government regulation, including regulations
concerning development of land, the home building, sales and
customer financing processes, tax laws and the environment; (14)
product liability litigation, warranty claims and claims made by
mortgage investors; (15) levels of competition; (16) availability
and terms of financing to the Company; (17) successful
identification and integration of acquisitions; (18) significant
influence of the Company’s controlling stockholders; (19)
availability of net operating loss carryforwards; (20) utility
shortages and outages or rate fluctuations; (21) geopolitical
risks, terrorist acts and other acts of war; (22) increases in
cancellations of agreements of sale; (23) loss of key management
personnel or failure to attract qualified personnel; (24)
information technology failures and data security breaches; (25)
legal claims brought against us and not resolved in our favor; and
(26) other factors described in detail in the Company’s Annual
Report on Form 10-K for the fiscal year ended October 31, 2017, and
in the Offering Memorandum. Except as otherwise required by
applicable securities laws, we undertake no obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events, changed circumstances or
any other reason.
Contact: |
|
Jeffrey T. O’KeefeVice
President of Investor Relations732-747-7800 |
|
Ethan LyleTeneo
Strategy212-886-9376 |
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