Hovnanian Enterprises Inc. said Monday that it has exchanged some $195 million in debt, a move that gives the homebuilder some financial breathing room.
The debt swap effectively pushes back the homebuilder's due date on $141.8 million in notes due in 2014 and 2015 and on $53.2 million in notes due 2016 and 2017 out to 2021.
Note holders who agreed to the swap will be getting a significantly lower interest rate and will have to wait longer to get paid back. But Hovnanian also agreed to kick in some $14.2 million in cash to some of the bond holders as an incentive.
The senior notes due in 2014 and 2015 had interest rates ranging from 6.25 percent to 11.875 percent. These were exchanged for new 5 percent secured notes.
The notes due 2016 and 2017 had interest rates ranging from 6.25 percent to 8.625 percent and were swapped for new 2 percent secured notes.
All the new notes will be secured by a first-priority lien on the assets of certain Hovnanian subsidiaries. That means that bondholders can go after the assets in the event Hovnanian fails to pay back the bond amounts.
Hovnanian is the seventh-largest homebuilder in the U.S., by closings last year. Like other builders, it has invested in acquiring land and opening new communities where it sells homes. It's banking on sales at these newer, more profitable communities to help it weather weak housing demand.
But its spending has raised concerns among some Wall Street analysts and debt rating agencies that the builder might not take in enough cash to cover its operating costs should the housing market weaken further.
Earlier this month, Standard & Poor's Ratings Services lowered the debt ratings for Hovnanian after the builder announced plans for the debt exchange.
S&P credit analyst George Skoufis said the debt exchange was "tantamount to a default."
Hovnanian shares slipped a penny to $1.46 in afternoon trading.
