UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): April 6, 2018
HOVNANIAN ENTERPRISES, INC.
(Exact Name of Registrant as Specified in Charter)
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Delaware |
1-8551 |
22-1851059 |
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(State or Other |
(Commission File Number) |
(I.R.S. Employer |
90 Matawan Road, 5th Floor
Matawan, New Jersey 07747
(Address of Principal Executive Offices) (Zip Code)
(732) 747-7800
(Registrant’s telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since
Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
☐ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
☐ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
☐ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
☐ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item 7.01 Regulation FD Disclosure.
On April 6, 2018, Hovnanian Enterprises, Inc. (the “Company”) made available presentation slides with respect to the Exchange Offer (defined under Item 8.01 below) and Existing 2022 Notes Consent Solicitation (defined under Item 8.01 below). A copy of the presentation slides is attached hereto as Exhibit 99.3 and is incorporated herein by reference.
Item 8.01 Other Events.
Exchange Offer
On April 6, 2018, the Company issued a press release announcing that K. Hovnanian Enterprises, Inc. (“K. Hovnanian”) has commenced a private offer to eligible holders to exchange (the “Exchange Offer”) any and all of K. Hovnanian’s $440.0 million outstanding 10.000% Senior Secured Notes due 2022 (the “Existing 2022 Notes”) and $400.0 million 10.500% Senior Secured Notes due 2024 (together with the Existing 2022 Notes, the “Existing Notes”) for K. Hovnanian’s newly issued 3.0% Senior Notes due 2047 (the “New Notes”). The Exchange Offer is subject to the terms and conditions set forth in the Confidential Offering Memorandum and in the related Letter of Transmittal and Consent (collectively, the “Exchange Offer Documents”), including that at least $150.0 million in aggregate principal amount of the Existing Notes have been validly tendered (and not validly withdrawn prior to the Withdrawal Deadline (as defined below)) by holders thereof prior to the Early Tender Deadline (as defined below) and accepted by K. Hovnanian.
The Exchange Offer will expire at 11:59 p.m., New York City time, on May 3, 2018, unless extended or earlier terminated (such time and date, as the same may be extended, the “Expiration Time”). In order to receive the exchange consideration of $1,250 principal amount of New Notes for each $1,000 principal amount of Existing Notes (the “Exchange Consideration”) on the Early Settlement Date (as defined below), eligible holders must validly tender their Existing Notes prior to 5:00 p.m., New York City time, on April 19, 2018, unless extended (such time and date, as the same may be extended, the “Early Tender Deadline”). Eligible holders who validly tender their Existing Notes after the Early Tender Deadline but on or prior to the Expiration Time will receive the Exchange Consideration on the Final Settlement Date (as defined below). Existing Notes tendered may be withdrawn at any time prior to 5:00 p.m., New York City time on April 19, 2018, unless extended (as the same may be extended, the “Withdrawal Deadline”), but not thereafter, unless required by applicable law.
Assuming that the conditions to the Exchange Offer are satisfied or waived, K. Hovnanian anticipates that the “Early Settlement Date” will be the second business day after the Early Tender Deadline. Assuming that the conditions to the Exchange Offer are satisfied or waived, the “Final Settlement Date” is expected to be the business day after the Expiration Time.
The New Notes have not been and will not be registered under the Securities Act of 1933, as amended (the “Securities Act”), or any state securities laws. The New Notes may not be offered or sold within the United States or to U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
Consent Solicitation
In conjunction with the Exchange Offer, K. Hovnanian is soliciting consents (the “Existing 2022 Notes Consent Solicitation”) from the holders of the Existing 2022 Notes to amend (the “Proposed Amendment”) the indenture governing the Existing 2022 Notes to eliminate the restrictions on K. Hovnanian’s ability to purchase, repurchase, redeem, acquire or retire for value K. Hovnanian’s 8.000% Senior Notes due 2019 and refinancing or replacement indebtedness in respect thereof and refinancing or replacement indebtedness in respect of K. Hovnanian’s previously outstanding 7.000% Senior Notes due 2019, including K. Hovnanian’s 5.0% Senior Notes due 2040, 13.5% Senior Notes due 2026 and unsecured term loan facility. The Existing 2022 Notes Consent Solicitation is being made in accordance with the terms and subject to the conditions stated in the Exchange Offer Documents, including the receipt of the consent of the holders of at least a majority in aggregate principal amount of the outstanding Existing 2022 Notes. Holders of Existing 2022 Notes may not consent to the Proposed Amendment without tendering their Existing 2022 Notes in the Exchange Offer and holders of Existing 2022 Notes may not tender their Existing 2022 Notes in the Exchange Offer without consenting to the Proposed Amendment.
This Current Report on Form 8-K is neither an offer to purchase or sell nor a solicitation of an offer to sell or buy the Existing Notes, the New Notes or any other securities of K. Hovnanian or the Company. The Exchange Offer is being made solely on the terms and subject to the conditions set forth in the Exchange Offer Documents and the information in this Current Report on Form 8-K is qualified by reference to such Exchange Offer Documents. This Current Report on Form 8-K also is not a solicitation of consents to the Proposed Amendment, and the Existing 2022 Notes Consent Solicitation is being made solely on the terms and subject to the conditions set forth in the Exchange Offer Documents and the information in this Current Report on Form 8-K is qualified by reference to such documents.
A copy of the press release announcing the Exchange Offer and Existing 2022 Notes Consent Solicitation is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Additional Information
In connection with the Exchange Offer and the Existing 2022 Notes Consent Solicitation, the Company is disclosing under this Item 8.01 the information included as Exhibit 99.2 hereto, which is incorporated herein by reference.
* * * *
All statements in this Current Report on Form 8-K that are not historical facts should be considered as “Forward-Looking Statements” within the meaning of the “Safe Harbor” provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Although the Company believes that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to, (1) changes in general and local economic, industry and business conditions and impacts of a sustained homebuilding downturn; (2) adverse weather and other environmental conditions and natural disasters; (3) levels of indebtedness and restrictions on the Company’s operations and activities imposed by the agreements governing the Company’s outstanding indebtedness; (4) the Company's sources of liquidity; (5) changes in credit ratings; (6) changes in market conditions and seasonality of the Company’s business; (7) the availability and cost of suitable land and improved lots; (8) shortages in, and price fluctuations of, raw materials and labor; (9) regional and local economic factors, including dependency on certain sectors of the economy, and employment levels affecting home prices and sales activity in the markets where the Company builds homes; (10) fluctuations in interest rates and the availability of mortgage financing; (11) changes in tax laws affecting the after-tax costs of owning a home; (12) operations through joint ventures with third parties; (13) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment; (14) product liability litigation, warranty claims and claims made by mortgage investors; (15) levels of competition; (16) availability and terms of financing to the Company; (17) successful identification and integration of acquisitions; (18) significant influence of the Company’s controlling stockholders; (19) availability of net operating loss carryforwards; (20) utility shortages and outages or rate fluctuations; (21) geopolitical risks, terrorist acts and other acts of war; (22) increases in cancellations of agreements of sale; (23) loss of key management personnel or failure to attract qualified personnel; (24) information technology failures and data security breaches; (25) legal claims brought against the Company and not resolved in the Company’s favor; and (26) certain risks, uncertainties and other factors described in detail in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017 and subsequent filings with the Securities and Exchange Commission. Except as otherwise required by applicable securities laws, the Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Item 9.01. Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are attached to this Current Report on Form 8-K:
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Exhibit No. |
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Description |
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99.1 |
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99.2 |
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99.3 |
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Presentation slides – Exchange Offer and Existing 2022 Notes Consent Solicitation |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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HOVNANIAN ENTERPRISES, INC. (Registrant) |
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By: |
/s/ Michael Discafani |
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Name: Michael Discafani |
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Title: Vice President, Corporate Counsel and Secretary |
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Date: April 6, 2018
Exhibit 99.1
| HOVNANIAN ENTERPRISES, INC. | For Immediate Release | |
| Contact: | Jeffrey T. O’Keefe | Ethan Lyle |
| Vice President of Investor Relations | Teneo Strategy | |
| 732-747-7800 | 212-886-9376 | |
K. HOVNANIAN ENTERPRISES, INC. COMMENCES EXCHANGE OFFER AND CONSENT SOLICITATION
MATAWAN, NJ, April 6, 2018 – Hovnanian Enterprises, Inc. (NYSE: HOV) (the “Company”) announced today that its wholly-owned subsidiary, K. Hovnanian Enterprises, Inc. (the “Issuer”), has commenced a private offer to eligible holders to exchange (the “Exchange Offer”) any and all of the Issuer’s $440,000,000 outstanding 10.000% Senior Secured Notes due 2022 (the “Existing 2022 Notes”) and $400,000,000 outstanding 10.500% Senior Secured Notes due 2024 (together with the Existing 2022 Notes, the “Existing Notes”) for the Issuer’s newly issued 3.0% Senior Notes due 2047 (the “New Notes”) on the terms and subject to the conditions set forth in a Confidential Offering Memorandum, dated April 6, 2018 (as it may be amended or supplemented from time to time, the “Offering Memorandum”), and in the related Letter of Transmittal and Consent (as it may be amended or supplemented from time to time, and, collectively with the Offering Memorandum, the “Exchange Offer Documents”).
The Exchange Offer will expire at 11:59 p.m., New York City time, on May 3, 2018, unless extended or earlier terminated (such time and date, as the same may be extended, the “Expiration Time”). In order to receive the Exchange Consideration (as defined below) on the Early Settlement Date (as defined below), eligible holders must validly tender their Existing Notes prior to 5:00 p.m., New York City time, on April 19, 2018, unless extended (such time and date, as the same may be extended, the “Early Tender Deadline”). Eligible holders who validly tender their Existing Notes after the Early Tender Deadline but on or prior to the Expiration Time will receive the Exchange Consideration on the Final Settlement Date (as defined below). Existing Notes tendered may be withdrawn at any time prior to 5:00 p.m., New York City time, on April 19, 2018, unless extended (as the same may be extended, the “Withdrawal Deadline”), but not thereafter, unless required by applicable law.
In exchange for each $1,000 principal amount of Existing Notes and integral multiples thereof validly tendered by eligible holders (and not validly withdrawn prior to the Withdrawal Deadline) prior to the Early Tender Deadline or the Expiration Time, as applicable, and accepted by us, participating holders of Existing Notes will receive $1,250 principal amount of New Notes plus accrued and unpaid interest, if any, to, but excluding, the applicable settlement date on such Existing Notes (the “Exchange Consideration”) on the Early Settlement Date or Final Settlement Date, as applicable. If New Notes are issued in exchange for the Existing Notes on the Early Settlement Date, holders who receive New Notes in exchange for Existing Notes on the Final Settlement Date will receive New Notes that will have an embedded entitlement to interest (“pre-issuance interest”) for the period from and including the Early Settlement Date to, but excluding, the Final Settlement Date. As a result, the cash payable for accrued and unpaid interest on the Existing Notes exchanged on the Final Settlement Date will be reduced by the amount of the pre-issuance interest on the New Notes exchanged therefor. The aggregate Exchange Consideration issued in respect of each participating holder for all Existing Notes validly tendered (and not validly withdrawn prior to the Withdrawal Deadline) and accepted by us will be rounded down, if necessary, to $2,000 or the nearest whole multiple of $1,000 in excess thereof. This rounded amount will be the principal amount of New Notes you will receive as part of your Exchange Consideration, and no additional cash will be paid in lieu of any principal amount of New Notes not received as a result of such rounding down. Any such adjustment will apply to all Existing Notes tendered and accepted in the Exchange Offer.
The Issuer’s obligation to accept for exchange any Existing Notes validly tendered and not validly withdrawn before the Withdrawal Deadline pursuant to the Exchange Offer is conditioned upon the satisfaction or, if applicable, waiver of certain conditions, which are more fully described in the Offering Memorandum, including, among others, at least $150.0 million in aggregate principal amount of the Existing Notes having been validly tendered (and not validly withdrawn prior to the Withdrawal Deadline) by holders thereof prior to the Early Tender Deadline, and certain other conditions.
Assuming that the conditions to the Exchange Offer are satisfied or waived, the Issuer intends for the “Early Settlement Date” to occur promptly after the Early Tender Deadline. It is anticipated that the Early Settlement Date will be the second business day after the Early Tender Deadline. The Issuer reserves the right, in its sole discretion, to designate the Early Settlement Date at any date following the Early Tender Deadline. Assuming that the conditions to the Exchange Offer are satisfied or waived, the “Final Settlement Date” will be promptly after the Expiration Time and is expected to be the business day after the Expiration Time.
In conjunction with the Exchange Offer, the Issuer is soliciting consents (the “Existing 2022 Notes Consent Solicitation”) from the holders of the Existing 2022 Notes to amend (the “Proposed Amendment”) the indenture (the “Indenture”) governing the Existing 2022 Notes. The Existing 2022 Notes Consent Solicitation is being made in accordance with the terms and subject to the conditions stated in the Offering Memorandum. Holders of Existing 2022 Notes may not consent to the Proposed Amendment without tendering their Existing 2022 Notes in the Exchange Offer and holders of Existing 2022 Notes may not tender their Existing 2022 Notes in the Exchange Offer without consenting to the Proposed Amendment. The consummation of the Existing 2022 Notes Consent Solicitation is subject, among other things, to the receipt of the consent of the holders of at least a majority in aggregate principal amount of the outstanding Existing 2022 Notes. The Existing 2022 Notes Consent Solicitation will expire with the Exchange Offer at the Expiration Time.
The purpose of the Existing 2022 Notes Consent Solicitation is to obtain from holders of the Existing 2022 Notes approval of the Proposed Amendment to eliminate the restrictions on the Issuer’s ability to purchase, repurchase, redeem, acquire or retire for value the Issuer’s 8.000% Senior Notes due 2019 and refinancing or replacement indebtedness in respect thereof and refinancing or replacement indebtedness in respect of the Issuer’s previously outstanding 7.000% Senior Notes due 2019, including the Issuer’s 5.0% Senior Notes due 2040, 13.5% Senior Notes due 2026 and unsecured term loan facility.
Documents relating to the Exchange Offer and Existing 2022 Notes Consent Solicitation will only be distributed to holders of Existing Notes who complete a letter of eligibility confirming that they are within the category of holders that are eligible to participate in this private offer. To access the letter of eligibility, click on the following link: http://gbsc-usa.com/eligibility/khov.
The obligations under the New Notes will be fully and unconditionally guaranteed by the Company, and substantially all of its subsidiaries, other than the issuer of the New Notes, the Company’s home mortgage subsidiaries, certain of its title insurance subsidiaries, joint ventures, subsidiaries holding interests in joint ventures and its foreign subsidiary.
The New Notes will bear interest at the rate of 3.0% per year, accruing from the date of initial issuance. Interest on the New Notes will be payable on April 15 and October 15 of each year, beginning on October 15, 2018. The New Notes will mature on April 15, 2047. We may redeem some or all of the New Notes on or after the times, and at the redemption prices, specified in the Offering Memorandum.
Global Bondholder Services Corporation is serving as the exchange agent, tabulation agent and information agent for the Exchange Offer and Existing 2022 Notes Consent Solicitation. Any question regarding procedures for tendering Existing Notes and delivering consents in the Existing 2022 Notes Consent Solicitation and requests for copies of the Exchange Offer Documents may be directed to Global Bondholder Services by phone at 866-470-4300 (toll free) or 212-430-3774.
This press release is neither an offer to purchase or sell nor a solicitation of an offer to sell or buy the Existing Notes, the New Notes or any other securities of the Issuer or the Company. This press release also is not a solicitation of consents to the Proposed Amendment to the indenture governing the Existing 2022 Notes. The Exchange Offer and Existing 2022 Notes Consent Solicitation are being made solely on the terms and subject to the conditions set forth in the Exchange Offer Documents and the information in this press release is qualified by reference to such Exchange Offer Documents.
The Exchange Offer is being made within the United States only to persons reasonably believed to be “qualified institutional buyers” pursuant to Rule 144A under the Securities Act of 1933, as amended (the “Securities Act”), and outside the United States to non-U.S. investors. The New Notes have not been and will not be registered under the Securities Act or any state securities laws. The New Notes may not be offered or sold within the United States or to U.S. persons, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws.
About Hovnanian Enterprises
Hovnanian Enterprises, Inc., founded in 1959 by Kevork S. Hovnanian, is headquartered in Matawan, New Jersey. The Company is one of the nation’s largest homebuilders with operations in Arizona, California, Delaware, Florida, Georgia, Illinois, Maryland, New Jersey, Ohio, Pennsylvania, South Carolina, Texas, Virginia, Washington, D.C. and West Virginia. The Company’s homes are marketed and sold under the trade names K. Hovnanian® Homes, Brighton Homes® and Parkwood Builders. As the developer of K. Hovnanian’s® Four Seasons communities, the Company is also one of the nation’s largest builders of active lifestyle communities.
Forward-Looking Statements
All statements in this press release that are not historical facts should be considered as “Forward-Looking Statements.” Such statements involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Such forward-looking statements include but are not limited to statements related to the Company’s goals and expectations with respect to its financial results for future financial periods. Although we believe that our plans, intentions and expectations reflected in, or suggested by, such forward-looking statements are reasonable, we can give no assurance that such plans, intentions or expectations will be achieved. By their nature, forward-looking statements: (i) speak only as of the date they are made, (ii) are not guarantees of future performance or results and (iii) are subject to risks, uncertainties and assumptions that are difficult to predict or quantify. Therefore, actual results could differ materially and adversely from those forward-looking statements as a result of a variety of factors. Such risks, uncertainties and other factors include, but are not limited to, (1) changes in general and local economic, industry and business conditions and impacts of a sustained homebuilding downturn; (2) adverse weather and other environmental conditions and natural disasters; (3) levels of indebtedness and restrictions on the Company’s operations and activities imposed by the agreements governing the Company’s outstanding indebtedness; (4) the Company's sources of liquidity; (5) changes in credit ratings; (6) changes in market conditions and seasonality of the Company’s business; (7) the availability and cost of suitable land and improved lots; (8) shortages in, and price fluctuations of, raw materials and labor; (9) regional and local economic factors, including dependency on certain sectors of the economy, and employment levels affecting home prices and sales activity in the markets where the Company builds homes; (10) fluctuations in interest rates and the availability of mortgage financing; (11) changes in tax laws affecting the after-tax costs of owning a home; (12) operations through joint ventures with third parties; (13) government regulation, including regulations concerning development of land, the home building, sales and customer financing processes, tax laws and the environment; (14) product liability litigation, warranty claims and claims made by mortgage investors; (15) levels of competition; (16) availability and terms of financing to the Company; (17) successful identification and integration of acquisitions; (18) significant influence of the Company’s controlling stockholders; (19) availability of net operating loss carryforwards; (20) utility shortages and outages or rate fluctuations; (21) geopolitical risks, terrorist acts and other acts of war; (22) increases in cancellations of agreements of sale; (23) loss of key management personnel or failure to attract qualified personnel; (24) information technology failures and data security breaches; (25) legal claims brought against us and not resolved in our favor; and (26) certain risks, uncertainties and other factors described in detail in the Company’s Annual Report on Form 10-K for the fiscal year ended October 31, 2017 and in the Offering Memorandum. Except as otherwise required by applicable securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, changed circumstances or any other reason.
Exhibit 99.2
We and our officers and directors are currently subject to litigation concerning a recently completed exchange offer and may become subject to additional legal proceedings and regulatory review as a result of the exchange offer we launched on April 6, 2018 in respect of any and all of our 10.000% Senior Secured Notes due 2022 (the “Existing 2022 Notes”) and 10.500% Senior Secured Notes due 2024 to exchange such secured notes for our newly issued 3.0% Senior Notes due 2047 (the “New Notes”) and related consent solicitation in respect of the Existing 2022 Notes. Litigation and regulatory actions could harm our reputation, result in substantial expenditures and have a material and adverse effect on our business and results of operations.
On February 1, 2018, K. Hovnanian Enterprises, Inc. (the “Issuer”) completed an exchange offer pursuant to which it issued $90.6 million aggregate principal amount of 13.5% Senior Notes due 2026 (the “13.5% Notes”) and $90.1 million aggregate principal amount of 5.0% Senior Notes due 2040 (the “5.0% Notes”) in exchange for the Issuer’s 8.0% Senior Notes due 2019 (the “8.0% Notes”) and as part of the exchange offer, K. Hovnanian at Sunrise Trail III, LLC (“Sunrise Trail”), a wholly-owned subsidiary of Hovnanian Enterprises, Inc. (“Hovnanian”), purchased for cash an aggregate of $26.0 million principal amount of the 8.0% Notes (the “Purchased 8.0% Notes”). The indenture governing the 5.0% Notes and the 13.5% Notes contains limitations on actions with respect to the Purchased 8.0% Notes, including that the Issuer and the guarantors of such notes shall not make any interest payments on the Purchased 8.0% Notes prior to their stated maturity. We understand that the non-payment of interest on such Purchased 8.0% Notes (the next interest payment date is May 1, 2018) may result in a committee of the International Swaps and Derivatives Association (“ISDA”) determining that a “credit event” under certain credit default swap (“CDS”) contracts entered into by third-parties has occurred and that a CDS auction take place to determine the settlement payment with respect to the CDS contracts, which could result in significant monetary exposure for those entities that sold such CDS. Although we are not a party to any of these CDS contracts, we and our officers and directors have become subject to legal proceedings as described below, and may become subject to review from the Securities and Exchange Commission, Commodity Futures Trading Commission and other regulatory bodies, regarding the occurrence, or anticipated occurrence, of such “credit event.”
On January 11, 2018, Solus Alternative Asset Management LP (“Solus”) filed a complaint in the United States District Court for the Southern District of New York against GSO Capital Partners L.P., Hovnanian, the Issuer, Sunrise Trail, Ara K. Hovnanian and J. Larry Sorsby, which was amended on February 1, 2018. The complaint alleges improper and fraudulent structuring of the Issuer’s completed exchange offer to impact the CDS market, violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, and tortious interference with prospective economic advantage. Solus also seeks a declaratory judgment that Sunrise Trail has waived its entitlement to interest payments under the indenture governing the 8.0% Notes and that the exchange offer breached this indenture.
If ISDA determines that there will be a CDS auction in connection with a “credit event” due to the Issuer’s failure to pay interest on the Purchased 8.0% Notes, ISDA will also determine which of our debt instruments are “deliverable obligations” in such an auction for settlement and determination of the final auction price. We have no involvement in any of these ISDA determinations or the auction itself. Therefore, we cannot predict whether the New Notes will be determined to be “deliverable obligations” and what, if any, impact they may have on the settlement and final pricing determination. However, there is the potential for an adverse impact to those entities who sold CDS if the New Notes were to be deliverable in any such auction.
The ongoing litigation with Solus and any additional legal action as a result of the prior exchange offer or this Exchange Offer and any regulatory review may cause harm to our reputation and adversely affect our ability to access debt and other financing markets or make doing so more costly in order to refinance our existing debt or finance our operations in the future. Litigation and governmental inquiries are inherently unpredictable. Regardless of the merits of any claims, litigation and governmental inquiries may be both time-consuming and disruptive of our business. We could incur judgments, enter into settlement of claims or incur legal and other expenditures in connection therewith that may have a material and adverse effect on our results of operations and financial position.
Exhibit 99.3
