Item 1.01 Entry into a Material Definitive Agreement.
On December 10, 2019, Hovnanian Enterprises, Inc. (the "Company") and K.
Hovnanian Enterprises, Inc. ("K. Hovnanian"), a wholly owned subsidiary of the
Company, consummated the Notes Exchange Offers (as defined below) and the Term
Loan Exchange (as defined below). As a result of such transactions, K. Hovnanian
issued or borrowed $240.0 million aggregate principal amount of debt and retired
$327.9 million aggregate principal amount of debt.
New 2025 Notes Indenture
On December 10, 2019, the Company, K. Hovnanian and the other Guarantors (as
defined below) party thereto entered into an Indenture with Wilmington Trust,
National Association, as trustee and collateral agent (the "New 2025 Notes
Indenture"), under which K. Hovnanian issued $158,502,000 aggregate principal
amount of 10.000% Senior Secured 1.75 Lien Notes due 2025 (the "New 2025 Notes")
in exchange for the Old Notes (as defined below) of K. Hovnanian tendered by
holders thereof in connection with its previously disclosed exchange offers for
such notes (the "Notes Exchange Offers") and accepted by K. Hovnanian for
exchange. The notes exchanged in the Exchange Offers consisted of $23,152,000
aggregate principal amount of 10.000% Senior Secured Notes due 2022 (the "Old
2022 Notes") and $141,708,000 aggregate principal amount of 10.500% Senior
Secured Notes due 2024 (the "Old 2024 Notes" and, collectively with the Old 2022
Notes, the "Old Notes").
The New 2025 Notes are guaranteed by the Company and substantially all of its
subsidiaries, except for K. Hovnanian, its home mortgage subsidiaries, certain
of its title insurance subsidiaries, joint ventures and subsidiaries holding
interests in joint ventures (collectively, the "Guarantors"). The New 2025 Notes
and the guarantees thereof will be secured by substantially all of the assets
owned by K. Hovnanian and the Guarantors, subject to permitted liens and certain
exceptions. In respect of K. Hovnanian's other secured obligations, the liens
securing the New 2025 Notes are on a parity with any secured obligations that
are equal in priority with respect to the assets securing the New 2025 Notes,
including the 1.75 Lien Term Loans (as defined below), are senior to the liens
securing the Old Notes and any other future secured obligations that are junior
in priority with respect to the assets securing the New 2025 Notes and are
junior in priority with respect to the assets securing K. Hovnanian's Senior
Secured Revolving Credit Facility, 7.75% Senior Secured 1.125 Lien Notes due
2026, 10.5% Senior Secured 1.25 Lien Notes due 2026 and 11.25% Senior Secured
1.5 Lien Notes due 2026.
The New 2025 Notes bear interest at 10.000% per annum and mature on November 15,
2025. Interest on the New 2025 Notes is payable semi-annually on May 15 and
November 15 of each year, beginning on May 15, 2020, to holders of record at the
close of business on May 1 or November 1, as the case may be, immediately
preceding each such interest payment date.
The New 2025 Notes Indenture contains restrictive covenants that limit, among
other things, and in each case, subject to certain exceptions, the ability of
the Company and certain of its subsidiaries, including K. Hovnanian, to incur
additional indebtedness, pay dividends and make distributions on common and
preferred stock, repay certain indebtedness prior to its respective stated
maturity, repurchase common and preferred stock, make other restricted payments
(including investments), sell certain assets (including in certain land banking
transactions), incur liens, consolidate, merge, sell or otherwise dispose of all
or substantially all of their assets and enter into certain transactions with
affiliates. The New 2025 Notes Indenture also contains customary events of
default which would permit the holders of the New 2025 Notes to declare such New
2025 Notes to be immediately due and payable if not cured within applicable
grace periods, including the failure to make timely payments on the New 2025
Notes or other material indebtedness, the failure to satisfy covenants, the
failure of the documents granting security for the New 2025 Notes to be in full
force and effect, the failure of the liens on any material portion of the
collateral securing the New 2025 Notes to be valid and perfected and specified
events of bankruptcy and insolvency.
A copy of the New 2025 Notes Indenture, including the form of New 2025 Notes, is
attached as Exhibit 4.1 to this Current Report on Form 8-K, and is incorporated
herein by reference.
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New 1.75 Lien Credit Agreement
On December 10, 2019, K. Hovnanian, the Company, the other Guarantors party
thereto, Wilmington Trust, National Association, as administrative agent (the
"Administrative Agent"), and affiliates of certain investment managers (the
"Investors"), as lenders, entered into a credit agreement (the "1.75 Lien Credit
Agreement") providing for $81,498,000 of senior secured 1.75 lien term loans
(the "1.75 Lien Term Loans"), that were borrowed by K. Hovnanian and guaranteed
by the Guarantors in exchange (the "Term Loan Exchange") for $162,996,000 of K.
Hovnanian's senior unsecured term loans due February 1, 2027 pursuant to an
Exchange Agreement, dated December 10, 2019, by and among K. Hovnanian, the
Company, the other Guarantors party thereto and the Investors. The 1.75 Lien
Term Loans and the guarantees thereof will be secured on a pari passu basis with
the New 2025 Notes by the same assets that secure the New 2025 Notes, subject to
permitted liens and certain exceptions. The 1.75 Lien Term Loans will bear
interest at a rate equal to 10.0% per annum and will mature on January 31, 2028.
The 1.75 Lien Credit Agreement contains representations and warranties and
covenants that limit, among other things, and in each case, subject to certain
exceptions, the ability of the Company and certain of its subsidiaries,
including K. Hovnanian, to incur additional indebtedness, pay dividends and make
distributions on common and preferred stock, repay certain indebtedness prior to
its respective stated maturity, repurchase common and preferred stock, make
other restricted payments, including investments, sell certain assets (including
in certain land banking transactions), incur liens, consolidate, merge, sell or
otherwise dispose of all or substantially all of their assets and enter into
certain transactions with affiliates. The 1.75 Lien Credit Agreement also
contains customary events of default which would permit the Administrative Agent
thereunder to exercise remedies with respect to the collateral securing the 1.75
Lien Term Loans and declare the 1.75 Lien Term Loans to be immediately due and
payable if not cured within applicable grace periods, including the failure to
make timely payments on the 1.75 Lien Term Loans, including any interest and
fees due in connection therewith, or other material indebtedness, the failure to
satisfy covenants, the material inaccuracy of representations or warranties
made, the failure of the documents granting security for the 1.75 Lien Term
Loans to be in full force and effect, the failure of the liens on any material
portion of the collateral securing the 1.75 Lien Term Loans to be valid and
perfected, cross acceleration to other material indebtedness, and specified
events of bankruptcy and insolvency.
A copy of the 1.75 Lien Credit Agreement is attached as Exhibit 10.1 to this
Current Report on Form 8-K and is incorporated herein by reference.
Collateral Documents and Intercreditor Agreements
In connection with the execution of the 1.75 Lien Indenture and the 1.75 Lien
Credit Agreement, K. Hovnanian and the Guarantors entered into various
collateral documents, including security agreements and a pledge agreement,
copies of which have been filed as Exhibits 10.2 through 10.4 to this Current
Report on Form 8-K and are incorporated by reference herein.
In connection with the issuance of the New 2025 Notes, K. Hovnanian and the
Guarantors entered into the Joinder, dated as of December 10, 2019 (the "New
2025 Notes Joinder"), to (a) the First Lien Intercreditor Agreement, dated as of
October 31, 2019 (the "First Lien Intercreditor Agreement"), which governs the
relative rights among the parties holding K. Hovnanian's senior secured first
priority secured debt (the "First Lien Debt"), and (b) the First Lien Collateral
Agency Agreement, dated as of October 31, 2019 (the "First Lien Collateral
Agency Agreement"), pursuant to which Wilmington Trust, National Association was
appointed as the joint first lien collateral agent for perfection purposes with
respect to the liens securing the First Lien Debt.
In addition, in connection with the borrowing of the 1.75 Lien Term Loans,
K. Hovnanian and the Guarantors entered into the Joinder, dated as of December
10, 2019 (the "1.75 Lien Term Loan Joinder"), to the First Lien Intercreditor
Agreement and the First Lien Collateral Agency Agreement.
Finally, in connection with the issuance of the New 2025 Notes and the borrowing
of the 1.75 Lien Term Loans, K. Hovnanian and the Guarantors entered into the
Joinder, dated as of December 10, 2019 (the "Junior ICA Joinder" and, together
with the New 2025 Notes Joinder and the 1.75 Lien Term Loan Joinder, the
"Joinders"), to the Second Amended and Restated Intercreditor Agreement, dated
as of October 31, 2019, which governs the relative rights between the parties
holding K. Hovnanian's First Lien Debt, on the one hand, and the parties holding
K. Hovnanian's senior secured debt which has a lien priority junior to the liens
securing the First Lien Debt, on the other hand.
. . .
Item 2.03 Creation of a Direct Financial Obligation or an Obligation Under an
Off-Balance Sheet Arrangement of a Registrant.
The information set forth above under Item 1.01 is hereby incorporated by
reference into this Item 2.03.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
4.1 Indenture dated as of December 10, 2019 relating to the 10.000% Senior
Secured 1.75 Lien Notes due 2025, among K. Hovnanian Enterprises, Inc.,
Hovnanian Enterprises, Inc., the subsidiary guarantors named therein and
Wilmington Trust, National Association, as Trustee and Collateral Agent,
including the form of the 10.000% Senior Secured 1.75 Lien Notes due 2025.
10.1 Credit Agreement, dated as of December 10, 2019, among K. Hovnanian
Enterprises, Inc., Hovnanian Enterprises, Inc., the subsidiary guarantors
named therein, Wilmington Trust, National Association, as Administrative
Agent, and the lenders party thereto.
10.2 1.75 Lien Security Agreement, dated as of December 10, 2019, relating to
the 10.000% Senior Secured 1.75 Lien Notes due 2025 and the 1.75 Lien Term
Loans, made by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc.
and the subsidiary guarantors named therein in favor of Wilmington Trust,
National Association, as 1.75 Pari Passu Lien Collateral Agent, and
Wilmington Trust, National Association, as Joint First Lien Collateral
Agent, Administrative Agent and 1.75 Lien Collateral Agent.
10.3 1.75 Lien Pledge Agreement, dated as of December 10, 2019, relating to the
10.000% Senior Secured 1.75 Lien Notes due 2025 and the 1.75 Lien Term
Loans, given by K. Hovnanian Enterprises, Inc., Hovnanian Enterprises, Inc.
and the subsidiary guarantors named to Wilmington Trust, National
Association, as 1.75 Pari Passu Lien Collateral Agent, and Wilmington Trust,
National Association, as Joint First Lien Collateral Agent.
10.4 1.75 Lien Trademark Security Agreement, dated as of December 10, 2019, by
K. HOV IP, II, Inc., in favor of Wilmington Trust, National Association, as
1.75 Pari Passu Lien Collateral Agent.
10.5 Joinder No. 1, dated as of December 10, 2019, to the First Lien
Intercreditor Agreement and First Lien Collateral Agency Agreement, each
dated as of October 31, 2019, among Wilmington Trust, National Association,
as 1.75 Lien Trustee and 1.75 Pari Passu Lien Collateral Agent, and
acknowledged by Wilmington Trust, National Association, as 1.75 Lien
Collateral Agent, with acknowledged receipt by Wilmington Trust, National
Association, as Senior Credit Agreement Administrative Agent, 1.125 Lien
Trustee, 1.125 Lien Collateral Agent, 1.25 Lien Trustee, 1.25 Lien
Collateral Agent, 1.5 Lien Trustee, 1.5 Lien Collateral Agent and Joint
First Lien Collateral Agent.
10.6 Joinder No. 2, dated as of December 10, 2019, to the First Lien
Intercreditor Agreement and First Lien Collateral Agency Agreement, each
dated as of October 31, 2019, among Wilmington Trust, National Association,
as Administrative Agent and 1.75 Pari Passu Lien Collateral Agent, with
acknowledged receipt by the Senior Credit Agreement Administrative Agent,
1.125 Lien Trustee, 1.125 Lien Collateral Agent, 1.25 Lien Trustee, 1.25
Lien Collateral Agent, 1.5 Lien Trustee, 1.5 Lien Collateral Agent and Joint
First Lien Collateral Agent.
10.7 Joinder, dated as of December 10, 2019, to the Second Amended and Restated
Intercreditor Agreement, dated as of October 31, 2019, among K. Hovnanian
Enterprises, Inc., Hovnanian Enterprises, Inc., the subsidiary guarantors
named therein and Wilmington Trust, National Association, as 1.75 Lien
Trustee, 1.75 Term Loan Administrative Agent and 1.75 Pari Passu Lien
Collateral Agent.
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