TEXT-S&P: Hovnanian ratings remain on watch positive
(The following statement was released by the rating agency)
Oct 4 - Standard & Poor's Ratings Services today said that its ratings, including the 'CCC-' corporate credit rating, on Hovnanian Enterprises Inc.
remain on CreditWatch with positive implications. We placed the ratings on Credit Watch with positive implications on Sept. 19, 2012, after the company announced that it would issue new senior secured notes and senior exchangeable notes to refinance existing senior secured notes. We expect to resolve the CreditWatch listing upon the full redemption of the 2016 notes, which we expect to occur on Nov. 1, 2012.
Hovnanian recently completed the sale of $577 million of 7.25% first-lien senior secured notes due 2020, $220 million of second-lien senior secured notes due 2020, and $100 million of 6% senior exchangeable notes due 2017. As of Oct. 2, 2012, the company has redeemed $637.2 million (79.95%) of the 10.625% senior secured notes due 2016 that were tendered as of Oct. 1, 2012 (early tender deadline), and issued a notice of redemption to holders of the remaining $159.8 million notes to redeem the notes on Nov. 1.
This transaction significantly lengthens the company's debt tenor by addressing the bulk of its 2016 debt maturity wall. Hovnanian's 2016 refinancing exposure declines to $218 million from slightly more than $1 billion, while the company's interest burden is reduced by $17 million. We believe extending this significant maturity and reducing the interest burden will help preserve cash and provide additional running room to improve operations/profitability as housing slowly recovers and the company continues to take steps to reduce its significant overall debt burden.
We intend to resolve the CreditWatch listing upon the completion of the redemption of the remaining outstanding 10.625% senior secured notes due 2016. At that time, we expect to raise our corporate credit rating on the company two notches to 'CCC+' from 'CCC-'. We would also expect to raise our rating on the builder's existing senior secured notes due 2021 to 'CCC' from 'CC' and senior unsecured notes due 2014-2017 to 'CCC-' from 'CC'.
RELATED CRITERIA AND RESEARCH
-- Industry Economic And Ratings Outlook: U.S. Home Buyers Return, But Can Builders Deliver? July 20, 2012
-- Issuer Ranking: U.S. Homebuilders, Strongest To Weakest, July 23, 2012
-- Key Credit Factors: Global Criteria For Single-Family Homebuilders, Sept. 27, 2011
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009
RATINGS LIST Hovnanian Enterprises Inc. Corporate credit rating CCC-/Watch Pos Senior unsecured CC/Watch Pos Recovery Rating 6 K. Hovnanian Enterprises Inc. Senior Secured due 2021 CC/Watch Pos Recovery Rating 5 Senior Unsecured CC/Watch Pos Recovery Rating 6 First Lien Senior Secured Notes due 2020 CCC+ Recovery Rating 3 Second Lien Senior Secured Notes due 2020 CCC- Recovery Rating 6
Exchangeable Notes due 2017 CCC-
Recovery Rating 6 Hovnanian Enterprises Inc. Preferred Stock C
Complete ratings information is available to subscribers of RatingsDirect on the Global Credit Portal at
. All ratings referenced herein can be found on Standard & Poor's public Web site at . Use the Ratings search box located in the left column. (New York Ratings Team)