Homebuilder Hovnanian, facing years-old debt, could get stock delisted

One of the country's largest builders is still paying off debt from acquisitions made before last financial collapse

National /
Jan.January 14, 2019 04:30 PM

Hovnanian Enterprises’ CEO Ara Hovnanian (Credit: Fox)

Hovnanian Enterprises, one of the country’s largest homebuilders, took on loads of debt to acquire companies and land more than a decade ago only to see the housing market collapse in 2008 and property values tumble.

Today, the New Jersey-based firm, which includes K. Hovnanian, faces the risk of being delisted from the New York Stock Exchange as it continues to struggle with that debt.

The company said it will seek shareholder approval at its annual meeting on March 19 to conduct a reverse stock split in order keep it on the exchange.

Hovnanian’s stock needs to stay above $1 in order to meet the NYSE’s listing requirements. The stock closed at 75 cents on Monday.

The homebuilder’s troubles pertain to longstanding issues from the financial crisis. From the late 1990s until around 2006 it was in a buying mode and its debt piled up, according to the Wall Street Journal. The companies troubles are also piling up, now that some experts predict housing sales to continue to slow in 2019.

Because of that debt, Hovnanian was unable to make large acquisitions at a time when homebuilders were buying up land at distressed prices. When sales rebounded and demand for starter homes rose significantly, it couldn’t capitalize.

The company had a total of more than $1.1 billion in senior outstanding debt as of Oct. 31, 2018, according to its filing with the Securities and Exchange Commission. Its total revenue was $1.9 billion at the end of October.

One bright spot today: Hovnanian saw an uptick in home deliveries, which ticked up 2.4 percent to 1,829 in the fourth quarter, from 1,787 a year ago, according to its earnings release.

Hovnanian’s financial issues got more complicated in 2017, when the company borrowed money from hedge fund Solus Alternative Asset Management to pay off some of its other debts, as it neared payment deadlines. Solus then sold a number of credit default swap contracts on that debt, including to Blackstone Group subsidiary GSO Capital Partners.

With Hovnanian in need of a refinancing, GSO stepped in as a potential new lender, but with one major condition: GSO needed Hovnanian to default on some of its debt so it could reap millions in profits from its credit default swap contracts with Solus.

This triggered Solus’ lawsuit in which it accused GSO of engaging in illegal market manipulation. The lawsuit was settled in May without Hovnanian needing to default.


Related Articles

arrow_forward_ios
The partially collapsed 12-story Champlain Towers South condo building (Getty)
Inside the tug-of-war over the Surfside condo site’s future
Inside the tug-of-war over the Surfside condo site’s future
 Adam Neumann (Getty, Bal Harbour Florida)
Ex-WeWork CEO Adam Neumann inks $44M deal for Bal Harbour properties
Ex-WeWork CEO Adam Neumann inks $44M deal for Bal Harbour properties
Alex Sapir and Giovanni Fasciano with Arte by Antonio Citterio in Surfside (Photos via Arte by Antonio Citterio/PR Newswire)
Miami penthouse sets cryptocurrency sale record: $22.5M
Miami penthouse sets cryptocurrency sale record: $22.5M
(iStock)
South Florida resi construction starts soar in March
South Florida resi construction starts soar in March
Eden Multifamily heads Jay Massirman and Jay Jacobson with Cypress Equity Investments CEO Michael Sorochinsky (rendering courtesy of MSA Architects)
Eden Multifamily, Cypress Equity score $24M construction loan for Tamarac apartments
Eden Multifamily, Cypress Equity score $24M construction loan for Tamarac apartments
(iStock)
Home prices across globe hit records, prompting worries of bubble
Home prices across globe hit records, prompting worries of bubble
Steven and Beth Millner with One Thousand Ocean (Patrick McMullan/Getty, Google Maps)
Private equity honcho pays $5M for Boca Raton condo
Private equity honcho pays $5M for Boca Raton condo
PulteGroup's Brent Bake a rendering of the site in Avenir
Pulte buys site at Avenir in Palm Beach Gardens, plans 390-home development
Pulte buys site at Avenir in Palm Beach Gardens, plans 390-home development
arrow_forward_ios

The Deal's newsletters give you the latest scoops, fresh headlines, marketing data, and things to know within the industry.

Loading...