Bloomberg News

Hovnanian Bonds Plunge, Default Risk Soars on Planned Debt Swap

September 29, 2011

Sept. 29 (Bloomberg) -- Bonds from Hovnanian Enterprises Inc. tumbled and the cost to protect the debt from default soared after the largest homebuilder in New Jersey announced exchange offers for up to $220 million of securities.

The company’s $797 million of 10.625 percent senior secured notes due in October 2016 tumbled 5.3 cents to 79.4 cents on the dollar as of 11:33 a.m. in New York, the lowest since at least March 2010, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority.

Credit-default swaps protecting against default for five years increased 1.8 percentage points to 59.5 percent upfront as of 3 p.m. in New York, according to data provider CMA. That’s in addition to 5 percent a year, meaning it would cost $5.95 million initially and $500,000 annually to protect $10 million of Hovnanian’s debt, and implies an 87.7 percent chance of default within five years, the data show.

The Red Bank, New Jersey-based homebuilder is offering to exchange senior notes with coupons ranging from 6.25 percent to 11.875 percent and maturities from 2014 through 2017 for up to $220 million of new 2 percent senior secured bonds due 2021, according to a statement distributed by Globe Newswire yesterday. Hovnanian said the offer will expire on Oct. 26 and that the early tender and consent time is at 5 p.m. in New York on Oct. 12.

To contact the reporter on this story: Sapna Maheshwari in New York at

To contact the editor responsible for this story: Pierre Paulden at

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