Fitch places Hovnanian on rating watch negative, following announcement of planned US$220M debt exchange offer
Michelle Rivera
CHICAGO
,
October 5, 2011
(press release)
–
Fitch Ratings has placed Hovnanian Enterprises, Inc. on Rating Watch Negative following the announcement of a planned $220 million debt exchange offer. Fitch views the proposed exchange offer to be a distressed debt exchange; the placement of Hovnanian's ratings on Rating Watch Negative reflects Fitch's 'Distressed Debt Exchange Criteria', published Aug. 12, 2011.
Distressed Debt Exchange: On Sept. 28, 2011, Hovnanian announced the commencement of private offers to exchange certain of its senior unsecured notes for up to $220 million of new 2% senior secured notes due 2021. The new notes will be secured by a first-priority lien on the assets of certain subsidiaries that are 'unrestricted subsidiaries' under the company's existing indentures. The assets of these subsidiaries are not collateral for the company's existing secured indebtedness.
Fitch believes that the exchange offer represents a material reduction in terms vis-a-vis the terms of the notes being offered for exchange. In particular, there is a significant reduction in interest rate and a lengthy extension of maturity date. Furthermore, the exchange offer is being initiated as part of an ongoing restructuring of the company's capital structure to increase financial flexibility. Fitch will address the Rating Watch Negative following the closing of the exchange offer.
The rating for HOV is influenced by the company's execution of its business model, land policies and geographic, price point and product line diversity. The rating additionally reflects the company's liquidity position, substantial debt and high leverage. It also incorporates the still challenging housing environment. With the recent softening in the economy and lowered economic growth expectations for 2011 and 2012, the environment may at best support a relatively modest recovery in housing metrics over the next year and a half.
Fitch has placed the following ratings on Rating Watch Negative:
--Issuer Default Rating (IDR) 'CCC';
--Senior secured notes 'B-/RR3';
--Senior unsecured notes 'C/RR6';
--Series A perpetual preferred stock 'C/RR6'.
Additional information is available at ' www.fitchratings.com '. The ratings above were unsolicited and have been provided by Fitch as a service to investors.
Applicable Criteria and Related Research:
--'Corporate Rating Methodology' (Aug. 12, 2011);
--'Distressed Debt Exchange' (Aug. 12, 2011);
--'Liquidity Considerations for Corporate Issuers' (June 12, 2007.
Applicable Criteria and Related Research:
Corporate Rating Methodology
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=647229
Distressed Debt Exchange -- Global Cross-Sector Criteria - Amended
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=649249
Liquidity Considerations for Corporate Issuers
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=328666
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