Hovnanian sets initial guidance on $840 million two-part secured notes; pricing expected this week

By Paul A. Harris

Portland, Ore., July 11 – Hovnanian Enterprises, Inc. is expected to price up to $840 million of senior secured notes (Caa2/CCC+) in tranches of five-year notes and seven-year notes before the end of the July 10 week, according to a market source.

The five-year notes are in the market with initial guidance in the 8% area; initial guidance on the seven-year notes is in the 9% area.

Tranche sizes remain to be determined.

Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC and J.P. Morgan Securities LLC are the joint bookrunners for the Rule 144A and Regulation S transaction, which is being conducted on the investment-grade syndicate desk.

The issuing entity will be subsidiary K. Hovnanian Enterprises, Inc.

The notes will be secured by liens on substantially all the assets of K. Hovnanian, and will rank junior to the liens securing K. Hovnanian's $75 million senior secured term loan facility.

The five-year notes come with two years of call protection. The seven-year notes come with three years of call protection.

The Red Bank, N.J.-based homebuilder plans to use the proceeds to fund the purchase of $75 million 10% senior secured second-lien notes due 2018, $145 million 9 1/8% senior secured second-lien notes due 2020 and $577 million 7¼% senior secured first-lien notes due 2020, all issued by K. Hovnanian.

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