Homebuilder Hovnanian Enterprises Inc. said Friday it plans to issue up to $600 million of five-year senior secured notes in a private placement and amend its revolving credit facility in an effort to refinance debt.
The amended credit agreement will decrease total commitments to $300 million, increase the amount of collateral and substantially eliminate maintenance covenants. Maintenance covenants give lenders more security, as they can require, for example, that certain levels of working capital be maintained.
Approval of the amendment by the lenders is subject to the issuance of the notes, Hovnanian said.
The notes will be secured on a second-priority lien basis on substantially all of the company's assets, to the extent that the assets secure its obligations under the amended credit facility.
The company plans to use proceeds from the notes offering to repay debt outstanding under its existing revolving credit facility and for general corporate purposes.
Hovnanian, like many major builders, has been losing money amid sharp sales and order declines and hefty charges to write down the value of unsold homes on its books.
Earlier this month, Hovnanian said it expects to record second-quarter charges of between $225 million and $275 million for land impairments and write-offs, due to ongoing sales and pricing declines.
Hovnanian's stock has fallen 65 percent from a high of $27.04 last May to close Thursday at $9.37.
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