Forestar’s 3.75% notes convertible, putable due to fundamental change

By Marisa Wong

Morgantown, W.Va., Oct. 12 – Forestar Group Inc.’s 3.75% convertible senior notes due 2020 are now convertible at any time until Nov. 9, due to a fundamental change, according to a Thursday press release.

Forestar said it notified holders of the 3.75% convertibles that, as a result of its merger with D.R. Horton Inc., a fundamental change and make-whole fundamental change occurred effective as of Oct. 5.

The notes are convertible into cash and shares of common stock of the surviving entity in the merger based on the weighted average of cash and shares of post-merger Forestar common stock received by holders of Forestar common stock.

As a result of elections made in connection with the merger, the per-share weighted average consideration attributable to one share of Forestar common stock consists of $14.19785 in cash and 0.20012 shares of post-merger Forestar common stock, according to the release.

Therefore, holders of the notes have the right to convert their notes into $579.77062 in cash and 8.17192 shares of post-merger Forestar common stock per $1,000 principal amount of notes.

The completion of the merger also constituted a make-whole fundamental change under the notes’ indenture. However, under the terms and conditions of the indenture, there will be no increase of the conversion rate in connection with this make-whole fundamental change.

Forestar has the option to settle any conversions in the form of the per-share weighted average consideration, cash or a combination of cash and the per-share weighted average consideration.

In connection with the completion of the merger, on Oct. 5 Forestar entered into a supplemental indenture with U.S. Bank NA as trustee. Under the supplemental indenture, for each share of Forestar common stock noteholders were previously entitled to receive upon conversion of their notes, holders will instead be entitled to receive the per-share weighted average consideration.

In addition, Forestar has launched an offer to repurchase for cash any and all of the convertible notes at par plus accrued interest to Nov. 13, the fundamental change repurchase date.

Tenders must be made prior to 5 p.m. ET on Nov. 9 and may be withdrawn at any time prior to that deadline.

This repurchase right is separate from the conversion right, the company noted.

The trustee has informed Forestar that, as of Oct. 12, all notes are held through the Depository Trust Co. and that there are no certificated notes in non-global form. As a result, all notes surrendered for repurchase or conversion must be delivered through the rules and procedures of the DTC.

U.S. Bank is the paying agent and conversion agent.

Forestar is an Austin, Texas-based real estate development company. D.R. Horton is a homebuilder based in Fort Worth.

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