The Real Deal Miami

Hovnanian dogged by debt to fund past acquisitions

The New Jersey-based home builder has $173 million of bonds maturing January 15

November 15, 2015 02:00PM

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Hovnanian Enterprises CEO Ara K. Hovnanian

Hovnanian Enterprises CEO Ara K. Hovnanian

Hovnanian Enterprises Inc., the nation’s eighth-ranked home builder, is carrying a heavy debt burden despite a recovery in the U.S. housing market now in its fourth year.

New Jersey-based Hovnanian has to repay $467 million in debt coming due through 2017 but the publicly traded company has no easy option for repaying.

Hovnanian’s stock price fell 44 percent in the 12 months ended in October, and the company’s market value is a fraction of its 2005 peak of $4.5 billion. The company reported a net loss of $7.7 million in the quarter ended July 31, its 13th net loss in 20 quarters.

Hovnanian CEO Ara Hovnanian told the Wall Street Journal the company will be profitable in the fiscal third quarter ended October 31.

Analysts and investors are anticipating Hovnanian’s next scheduled debt repayment, $173 million of bonds maturing January 15, and wondering whether the company will be able to refinance or use cash or sell land to raise cash.

Much of Hovnanian’s $2.1 billion in debt was used to finance multiple acquisitions of other home builders, many at premium prices, from 1999 to 2006, when the housing market crash began.

Vicki Bryan, a senior analyst with Gimme Credit LLC, a bond research firm, told the Wall Street Journal that bankruptcy may loom for Hovnanian: “The threat of bankruptcy is increasing for Hovnania, given its threadbare liquidity and severe cash consumption and significant debt maturities in coming months.” [Wall Street Journal] — Mike Seemuth