Hovnanian says debt exchange undersubscribed
Thu Dec 11, 2008 1:42pm EST
By Helen Chernikoff
NEW YORK, Dec 11 (Reuters) – Hovnanian’s recent debt exchange did not
lower its outstanding debt as much as it could have, but it is a first
step in a series of debt reduction moves, including more exchange
offers, Chief Financial Officer Larry Sorsby told Reuters.
Through the exchange, the No. 6 U.S. homebuilder reduced its outstanding debt
of about $2.51 billion by $42.1 million, Sorsby said.
It traded various unsecured senior notes for senior secured notes, due 2017,
with an 18 percent interest rate on the condition the holders accept a loss
of their original value in the range of 53 percent to 60.5 percent, according
to a company statement.
Hovnanian extended the offer in late October to holders of $1.5
billion worth of notes, but only $71.4 million worth of the company’s
noteholders accepted, likely because they refused to accept the heavy
discount, said analyst Vicki Bryan of Gimme Credit, a corporate bond
research firm.
Ultimately, Hovnanian issued $29.3 million of the new notes, according to a
Dec. 8 filing with the U.S. Securities and Exchange Commission.
If the company had found enough takers among its noteholders, it could have
lowered its absolute debt by about $350 million, said Fitch Ratings analyst
Robert Curran.
"In the end, there wasn’t enough interest to move the needle on the company’s
capital structure," Curran said.
But Sorsby sees this exchange as a start.
"While we did not capture as big of a discount as we would have had
the exchange been fully subscribed, we did reduce our outstanding
debt," Sorsby said.
"We believe that there are other initiatives we can take to reduce our debt
in the future, including additional exchange offers."
Bryan also sees more exchange offers in builders’ futures, as they struggle
to cope with the squeeze between debt expense and dwindling cash, Bryan said.
Over the course of the U.S. housing slump, banks have cut back their
agreements with the builders. Also, next year, the builders cannot rely on tax
refunds as they have until now because the provision that made them possible is
expiring.
"They won’t sell enough homes to save them, so where are they going to get
their cash?" Bryan said. "They have to get their debt down somehow." (Editing
by Andre Grenon)