11.	Senior Notes and Term Loan

Senior Notes and Term Loan

balances as of

April 30, 2017

and

October

31,

2016,

were as follows:


(In thousands)	April 30, 2017(1)(2)		October 31, 2016(1)(2)
Senior Secured Term Loan, net of debt issuance costs	$	72,412	$	72,646
Senior Secured Notes:
7.25% Senior Secured First Lien Notes due October 15, 2020	$	570,561	$	569,641
10.0% Senior Secured Second Lien Notes due October 15, 2018 (net of discount)		69,724		68,951
9.125% Senior Secured Second Lien Notes due November 15, 2020		143,541		143,337
9.5% Senior Secured Notes due November 15, 2020		74,245		74,140
2.0% Senior Secured Notes due November 1, 2021 (net of discount)		53,040		53,022
5.0% Senior Secured Notes due November 1, 2021 (net of discount)		132,852		131,998
Total Senior Secured Notes, net of debt issuance costs	$	1,043,963	$	1,041,089
Senior Notes:
7.0% Senior Notes due January 15, 2019	$	131,721	$	148,800
8.0% Senior Notes due November 1, 2019		233,875		247,348
Total Senior Notes, net of debt issuance costs	$	365,596	$	396,148
11.0% Senior Amortizing Notes due December 1, 2017, net of debt issuance costs	$	3,938	$	6,152
Senior Exchangeable Notes due December 1, 2017, net of debt issuance costs	$	52,395	$	57,298

(

) “

Notes payable and term loan” on our Condensed Consolidated Balance Sheets as of

April 30, 2017

and

October 31, 2016

consists of the total senior secured, senior, senior amortizing and senior exchangeable notes and senior secured term loan shown above, as well as accrued interest of

$31.1

million and

$32.4

million, respectively.

(

) As discussed in Note

we adopted ASU

2015

November 2016.

We applied the new guidance retrospectively to all prior periods presented in the financial statements to conform to the fiscal

2017

presentation. As a result,

$20.2

million of debt issuance costs at

October

31,

2016,

were reclassified from prepaids and other assets to a reduction in our senior secured term loan, senior secured, senior, senior amortizing and senior exchangeable notes. Debt issuance costs at

April 30, 2017

were

$17.8

million.

General

Except for K. Hovnanian, the issuer of the notes, our home mortgage subsidiaries, joint ventures and subsidiaries holding

interests in our joint ventures and certain of our title insurance subsidiaries, we and each of our subsidiaries are guarantors of the senior secured term loan and senior secured, senior, senior amortizing and senior exchangeable notes outstanding at

April 30, 2017 (

collectively, the “Notes Guarantors”). In addition to the Notes Guarantors, the

5.0%

Senior Secured Notes due

2021

(the

“5.0%

2021

Notes”), the

2.0%

Senior Secured Notes due

2021

(the

“2.0%

2021

Notes” and together with the

5.0%

2021

Notes, the

“2021

Notes”) and the

9.5%

Senior Secured Notes due

2020

(collectively with the

2021

Notes, the “JV Holdings Secured Group Notes”) are guaranteed by K. Hovnanian JV Holdings, L.L.C. and its subsidiaries except for certain joint ventures and joint venture holding companies (collectively, the “JV Holdings Secured Group”). Members of the JV Holdings Secured Group do

not

guarantee K. Hovnanian's other indebtedness.

The Term Loan Credit Agreement (defined below) and the indentures governing the notes outstan

ding at

April 30, 2017

not

contain any financial maintenance covenants, but do contain restrictive covenants that limit, among other things, the Company’s ability and that of certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness (other than certain permitted indebtedness and refinancing indebtedness, under the Term Loan and certain of the senior secured notes, any new or refinancing indebtedness

may

not

be scheduled to mature earlier than

January 15, 2021 (

so long as

member of the JV Holdings Secured Group is an obligor thereon), or

February 15, 2021 (

if otherwise), and nonrecourse indebtedness), pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness (with respect to the Term Loan and certain of the senior secured and senior notes) and common and preferred stock, make other restricted payments, make investments, sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all assets and enter into certain transactions with affiliates. The Term Loan Credit Agreement and the indentures also contain events of default which would permit the lenders/holders thereof to exercise remedies with respect to the collateral (as applicable), declare the loans made under the Term Loan Facility (defined below) (the “Term Loans”)/notes to be immediately due and payable if

not

cured within applicable grace periods, including the failure to make timely payments on the Term Loans/notes or other material indebtedness, cross default to other material indebtedness, the failure to comply with agreements and covenants and specified events of bankruptcy and insolvency, with respect to the Term Loans, material inaccuracy of representations and warranties and a change of control, and, with respect to the indentures governing the Term Loans and senior secured notes, the failure of the documents granting security for the Term Loans and senior secured notes to be in full force and effect, and the failure of the liens on any material portion of the collateral securing the Term Loans and senior secured notes to be valid and perfected. As of

April 30, 2017,

we believe we were in compliance with the covenants of the Term Loan Facility and the indentures governing our outstanding notes.

Under the terms of our debt agreements, we have the right to make certain redemptions and prepayments and, depending on market conditions and covenant restrictions,

may

do so from time to

time. We also continue to evaluate our capital structure and

may

also continue to make debt purchases and/or exchanges for debt or equity from time to time through tender offers, open market purchases, private transactions, or otherwise, or seek to raise additional debt or equity capital, depending on market conditions and covenant restrictions.

If our consolidated fixed charge coverage ratio, as defined in the agreements governing our debt instruments (other than the senior exchangeable notes discussed b

elow), is less than

2.0

1.0,

we are restricted from making certain payments, including dividends, and from incurring indebtedness other than certain permitted indebtedness, refinancing indebtedness and nonrecourse indebtedness. As a result of this ratio restriction, we are currently restricted from paying dividends, which are

not

cumulative, on our

7.625%

Series A Preferred Stock. We anticipate that we will continue to be restricted from paying dividends for the foreseeable future. Our inability to pay dividends is in accordance with covenant restrictions and will

not

result in a default under our debt instruments or otherwise affect compliance with any of the covenants contained in our debt instruments.

As a result of our evaluation of

our geographic operating footprint as it relates to our strategic objectives, we decided to exit the Minneapolis, MN and Raleigh, NC markets, and in the

third

quarter of fiscal

2016,

we completed the sale of our land portfolios in those markets. We have also decided to wind down our operations in the San Francisco Bay area in Northern California and in Tampa, FL by building and delivering homes to sell through our existing land position.

Any other liquidity-enhancing transaction will depend on identifying counterparties

, negotiation of documentation and applicable closing conditions and any required approvals. Due to covenant restrictions in our debt instruments, we are currently limited in the amount of debt we can incur that does

not

qualify as refinancing indebtedness with certain maturity requirements as discussed above (a limitation that we expect to continue for the foreseeable future), even if market conditions would otherwise be favorable, which could also impact our ability to grow our business.

Fiscal

2017

During the

six

months ended

April 30, 2017,

we repurchased in open market transactions

$17.5

million aggregate principal amount of

7.0%

Senior Notes due

2019,

$14.0

million aggregate principal amount of

8.0%

Senior Notes due

2019

and

6,925

Units (defined

below under "Units") representing

$6.9

million stated amount of Units. The aggregate purchase price for these transactions was

$30.8

million, plus accrued and unpaid interest. These transactions resulted in a gain on extinguishment of debt of

$7.8

million, which is included as “(Loss) gain on Extinguishment of Debt” on the Condensed Consolidated Statement of Operations. This gain was slightly offset by

$0.4

million of costs associated with the

9.5%

Secured Notes (defined below) issued during the

fourth

quarter of fiscal

2016.

Secured Obligations

Our

$75.0

million senior secured term loan facility (the “

Term Loan Facility”) has a maturity of

August 1, 2019 (

provided that if any of K. Hovnanian’s

7.0%

Senior Notes due

2019

(the

“7.0%

Notes”) remain outstanding on

October 15, 2018,

the maturity date of the Term Loan Facility will be

October 15, 2018,

or if any refinancing indebtedness with respect to the

7.0%

Notes has a maturity date prior to

January 15, 2021,

the maturity date of the Term Loan Facility will be

October 15, 2018)

and bears interest at a rate equal to LIBOR plus an applicable margin of

7.0%

or, at K. Hovnanian’s option, a base rate plus an applicable margin of

6.0%,

payable monthly. At any time from and after

September 8, 2018,

K. Hovnanian

may

voluntarily repay outstanding Term Loans, provided that voluntary prepayments of Eurodollar loans made on a date other than the last day of an interest period applicable thereto are subject to customary breakage costs and voluntary prepayments made prior to

February 1, 2019

are subject to a premium equal to

1.0%

of the aggregate principal amount of the Term Loans so prepaid (any prepayment of the Term Loans made on or after

February 1, 2019

are without any prepayment premium).

Our

10.0%

Senior Secured Second Lien Notes (the “

10.0%

Second Lien Notes”) have a maturity of

October 15, 2018,

and bear interest at a rate of

10.0%

per annum, payable semi-annually on

February 15

and

August 15

of each year, commencing

February 15, 2017,

to holders of record at the close of business on

February 1

and

August 1,

as the case

may

be, immediately preceding such interest payment dates. The

10.0%

Second Lien Notes are redeemable in whole or in part at our option at any time prior to

July 15, 2018

100%

of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after

July 15, 2018,

K. Hovnanian

may

also redeem some or all of the

10.0%

Second Lien Notes at a redemption price equal to

100%

of their principal amount. In addition, we

may

also redeem up to

35%

of the aggregate principal amount of the

10.0%

Second Lien Notes prior to

July 15, 2018

with the net cash proceeds from certain equity offerings at

110.00%

of principal.

Our

9.5%

Senior Secured Note

s (the

“9.5%

Secured Notes”) have a maturity of

November 15, 2020,

and bear interest at a rate of

9.50%

per annum, payable semi-annually on

February 15

and

August 15

of each year, commencing

February 15, 2017,

to holders of record at the close of business on

February 1

and

August 1,

as the case

may

be, immediately preceding such interest payment dates. The

9.5%

Notes are redeemable in whole or in part at our option at any time prior to

November 15, 2018

100%

of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after

November 15, 2018,

K. Hovnanian

may

also redeem some or all of the

9.5%

Notes at a redemption price equal to

100%

of their principal amount. In addition, we

may

also redeem up to

35%

of the aggregate principal amount of the

9.5%

Notes prior to

November 15, 2018

with the net cash proceeds from certain equity offerings at

109.50%

of principal.

All of K. Hovnanian

’s obligations under the Term Loan Facility and the

10.0%

Second Lien Notes are guaranteed by the Notes Guarantors. The Term Loan Facility and the guarantees thereof are secured on a

first

lien super priority basis relative to K. Hovnanian’s First Lien Notes (defined below), the

9.125%

Second Lien Notes (defined below) and the

10.0%

Second Lien Notes, and the

10.0%

Second Lien Notes and the guarantees thereof are secured on a pari passu

second

lien basis with K. Hovnanian’s

9.125%

Second Lien Notes, by substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, in each case subject to permitted liens and certain exceptions. The

9.5%

Notes are guaranteed by the Notes Guarantors and the members of the JV Holdings Secured Group. The

9.5%

Notes are secured on a pari passu

first

lien basis with K. Hovnanian’s

2021

Notes, by substantially all of the assets of the members of the JV Holdings Secured Group, subject to permitted liens and certain exceptions.

The

5.0%

2021

Notes and the

2.0%

2021

Notes were issued as separate series under an indenture, but have substantially th

e same terms other than with respect to interest rate and related redemption provisions, and vote together as a single class. The

2021

Notes are redeemable in whole or in part at our option at any time, at

100.0%

of the principal amount plus the greater of

of the principal amount and an applicable “Make-Whole Amount.”

The guarantees of the JV Holdings Secured Group with respect to the

2021

Notes and the

9.5%

Notes are secured, subject to permitted liens and other exceptions, by a

first

-priority lien o

n substantially all of the assets of the members of the JV Holdings Secured Group. As of

April 30, 2017,

the collateral securing the guarantees included (

)

$86.3

million of cash and cash equivalents (subsequent to such date, fluctuations as a result of cash uses include general business operations and real estate and other investments along with cash inflow primarily from deliveries); (

)

$146.5

million aggregate book value of real property of the JV Holdings Secured Group, which does

not

include the impact of inventory investments, home deliveries or impairments thereafter and which

may

differ from the value if it were appraised; and (

) equity interests in guarantors that are members of the JV Holdings Secured Group. Members of the JV Holdings Secured Group also own equity in joint ventures, either directly or indirectly through ownership of joint venture holding companies, with a book value of

$89.9

million as of

April 30, 2017;

this equity is

not

pledged to secure, and is

not

collateral for, the

2021

Notes. Members of the JV Holdings Secured Group are “unrestricted subsidiaries” under K. Hovnanian's other senior secured notes and senior notes and the Term Loan Facility, and thus have

not

guaranteed such indebtedness.

K. Hovnanian also has outstanding

7.25%

Senior Secured First Lien Notes due

2020

(the "First Lien Notes") and

9.125%

Senior Secured Second Lien Notes due

2020

(the

"9.125%

Second Lien Notes" and, together with the First Lien Notes, the

"2020

Secured Notes"). We

may

redeem some or all of the First Lien Notes at

103.625%

of principal commencing

October 15, 2016,

101.813%

of principal commencing

October 15, 2017

and

100%

of principal commencing

October 15, 2018.

may

redeem some or all of the

9.125%

Second Lien Notes at

104.563%

of principal commencing

November 15, 2016,

102.281%

of principal commencing

November 15, 2017

and

100%

of principal commencing

November 15, 2018.

The First Lien Notes are secured by a

first

-priority lien and the

9.125%

Second Lien Notes and the

10.0%

Second Lien Notes are secured by a

second

-priority lien, in each case, subject to permitted liens and other exceptions, on substantially all the assets owned by K. Hovnanian and the Notes Guarantors.

April 30, 2017,

the aggregate book value of the real property that

constituted collateral securing the Term Loan Facility, the

2020

Secured Notes and the

10.0%

Second Lien Notes was

$564.3

million, which does

not

include the impact of inventory investments, home deliveries or impairments thereafter and which

may

differ from the value if it were appraised. In addition, cash and cash equivalents collateral that secured the Term Loan Facility, the

2020

Secured Notes and the

10.0%

Second Lien Notes was

$190.4

million as of

April 30, 2017,

which included

$1.7

million of restricted cash collateralizing certain letters of credit. Subsequent to such date, fluctuations as a result of cash uses include general business operations and real estate and other investments along with cash inflow primarily from deliveries.

Senior Notes

K. H

ovnanian’s

7.0%

Senior Notes due

2019

are redeemable in whole or in part at our option at any time at

101.75%

of principal commencing

January 15, 2017

and

100%

of principal commencing

January 15, 2018.

K. Hovnanian

’s

8.0%

Senior Notes due

2019

are redeemable in whole or in part at K. Hovnanian’s option at any time prior to

August 1, 2019

at a redemption price equal to

100%

of their principal amount plus an applicable “Make-Whole Amount.” At any time and from time to time on or after

August 1, 2019,

K. Hovnanian

may

also redeem some or all of the notes at a redemption price equal to

100%

of their principal amount.

Units

October 2, 2012,

the Company and K. Hovnanian issued

$100,000,000

aggregate stated amount of

6.0%

Exchangeable Note Units (the “

Units”) (equivalent to

100,000

Units). Each

$1,000

stated amount of Units initially consists of (

) a

zero

coupon senior exchangeable note due

December 1, 2017 (

a “Senior Exchangeable Note”) issued by K. Hovnanian, which bears

cash interest and has an initial principal amount of

$768.51

per Senior Exchangeable Note, and that will accrete to

$1,000

at maturity and (

) a senior amortizing note due

December 1, 2017 (

a “Senior Amortizing Note”) issued by K. Hovnanian, which has an initial principal amount of

$231.49

per Senior Amortizing Note, bears interest at a rate of

11.0%

per annum, and has a final installment payment date of

December 1, 2017.

Each Unit

may

be separated into its constituent Senior Exchangeable Note and Senior Amortizing Note after the initial issuance date of the Units, and the separate components

may

be combined to create a Unit.

Each Senior

Exchangeable Note had an initial principal amount of

$768.51

(which will accrete to

$1,000

over the term of the Senior Exchangeable Note at an annual rate of

5.17%

from the date of issuance, calculated on a semi-annual bond equivalent yield basis). Holders

may

exchange their Senior Exchangeable Notes at their option at any time prior to

5:00

p.m., New York City time, on the business day immediately preceding

December 1, 2017.

Each Senior Exchangeable Note will be exchangeable for shares of Class A Common Stock at an initial exchange rate of

185.5288

shares of Class A Common Stock per Senior Exchangeable Note (equivalent to an initial exchange price, based on

$1,000

principal amount at maturity, of approximately

$5.39

per share of Class A Common Stock). The exchange rate will be subject to adjustment in certain events. If certain corporate events occur prior to the maturity date, the Company will increase the applicable exchange rate for any holder who elects to exchange its Senior Exchangeable Notes in connection with such corporate event. In addition, holders of Senior Exchangeable Notes will also have the right to require K. Hovnanian to repurchase such holders’ Senior Exchangeable Notes upon the occurrence of certain of these corporate events. As of

April 30, 2017,

18,305

Senior Exchangeable Notes have been converted into

3.4

million shares of our Class A Common Stock, all of which were converted during the

first

quarter of fiscal

2013.

September 2016,

K. Hovnanian purchased a total of

20,823

Units for an aggregate purchase price of

$20.6

million, and in

November 2016,

K. Hovnanian purchased a total of

6,925

Units for an aggregate purchase price of

$6.9

million.

On each

June 1

and

December 1 (

each, an “

installment payment date”), K. Hovnanian will pay holders of Senior Amortizing Notes equal semi-annual cash installments of

$30.00

per Senior Amortizing Note (except for the

June 1, 2013

installment payment, which was

$39.83

per Senior Amortizing Note), which cash payment in the aggregate will be equivalent to

6.0%

per year with respect to each

$1,000

stated amount of Units. Each installment will constitute a payment of interest (at a rate of

11.0%

per annum) and a partial repayment of principal on the Senior Amortizing Note. Following certain corporate events that occur prior to the maturity date, holders of the Senior Amortizing Notes will have the right to require K. Hovnanian to repurchase such holders’ Senior Amortizing Notes.