11.	Senior Notes and Credit Facilities

Senior notes and credit facilities balances as of

July 31, 2018

and

October

31,

2017,

were as follows:

(In thousands)	July 31, 2018(1)(2)	October 31, 2017(1)(2)
Senior Secured Term Loan due 2019, net of debt issuance costs	$73,850	$72,987
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$74,508	$74,350
2.0% Senior Secured Notes due November 1, 2021 (net of discount)	53,085	53,058
5.0% Senior Secured Notes due November 1, 2021 (net of discount)	135,105	133,732
10.0% Senior Secured Notes due July 15, 2022	435,158	434,543
10.5% Senior Secured Notes due July 15, 2024	394,507	394,953
Total Senior Secured Notes, net of debt issuance costs	$1,092,363	$1,090,636
Senior Notes:
7.0% Senior Notes due January 15, 2019	$-	$131,957
8.0% Senior Notes due November 1, 2019 (3)	-	234,293
13.5% Senior Notes due February 1, 2026 (including premium)	101,607	-
5.0% Senior Notes due February 1, 2040 (net of discount)	43,330	-
Total Senior Notes, net of debt issuance costs	$144,937	$366,250
11.0% Senior Amortizing Notes due December 1, 2017, net of debt issuance costs	$-	$2,045
Senior Exchangeable Notes due December 1, 2017, net of debt issuance costs	$-	$53,919
Senior Unsecured Term Loan Credit Facility due 2027, net of debt issuance costs	$201,610	$-
Unsecured Revolving Credit Facility	$26,000	$52,000

(

) “Notes payable” on our Condensed Consolidated Balance Sheets as of

July 31, 2018

and

October 31, 2017

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

$17.9

million and

$41.8

million, respectively.

(

) Unamortized debt issuance costs at

July 31, 2018

and

October 31, 2017

were

$15.3

million and

$16.1

million, respectively.

(

)

$26.0

million of

8.0%

Senior Notes due

2019

are owned by a wholly-owned consolidated subsidiary of HEI. Therefore, in accordance with GAAP, such notes are

not

reflected on the Condensed Consolidated Balance Sheets of HEI.

General

Except for K. Hovnanian, the issuer of the notes and borrower under our credit facilities, 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 Secured Term Loan Facility (as defined below), the Unsecured Term Loan Facility (as defined below), the Unsecured Revolving Credit Facility (as defined below) and the senior secured notes and senior notes outstanding at

July 31, 2018 (

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%

2020

Notes (defined below) 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 credit agreements governing the Secured Term Loan Facility, the Unsecured Term Loan Facility, the Unsecured Revolving Credit Facility (collectively, the “credit facilities”) and the indentures governing the notes outstanding at

July 31, 2018

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 nonrecourse indebtedness, certain permitted indebtedness and refinancing indebtedness (under the Secured Term Loans (as defined below) and the

9.5%

2020

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 under the

10.0%

Senior Secured Notes due

2022

(the

“10.0%

2022

Notes”), any refinancing indebtedness of the

7.0%

Senior Notes due

2019

(the

“7.0%

Notes”) (which includes the Unsecured Term Loans (as defined below)) and

8.0%

Senior Notes due

2019

(the

“8.0%

Notes” and together with the

7.0%

Notes, the

“2019

Notes”) (which includes the New Notes (as defined below) and the Unsecured Term Loans)

may

not

be scheduled to mature earlier than

July 16, 2024 (

such restrictive covenant in respect of the

10.5%

Senior Secured Notes due

2024

(the

“10.5%

2024

Notes”) was eliminated as described below under “—Fiscal

2018”

)), pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness (with respect to the credit facilities and certain of the senior secured and senior notes) and common and preferred stock, make other restricted payments, including investments, sell certain assets (including in certain land banking transactions), incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all assets, enter into certain transactions with affiliates and make cash repayments of the

2019

Notes and refinancing indebtedness in respect thereof (with respect to the

10.0%

2022

Notes). The credit agreements governing the Secured Term Loan Facility, the Unsecured Term Loan Facility and the Unsecured Revolving Credit Facility and the indentures governing the notes 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 Secured Term Loan Facility (the “Secured Term Loans”), loans made under the Unsecured Term Loan Facility (the “Unsecured Term Loans”) and loans made under the Unsecured Revolving Credit Facility (the “Unsecured Loans”)/notes to be immediately due and payable if

not

cured within applicable grace periods, including the failure to make timely payments on the Secured Term Loans, the Unsecured Term Loans or Unsecured 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 Secured Term Loans, the Unsecured Term Loans and the Unsecured Loans, material inaccuracy of representations and warranties and with respect to the Secured Term Loans and the Unsecured Term Loans, a change of control, and, with respect to the Secured Term Loans and senior secured notes, the failure of the documents granting security for the Secured 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 Secured Term Loans and senior secured notes to be valid and perfected. As of

July 31, 2018,

we believe we were in compliance with the covenants of the credit facilities and the indentures governing our outstanding notes.

If our consolidated fixed charge coverage ratio, as defined in the agreements governing our debt instruments, 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.

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.

Any 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

2018

December 1, 2017,

our

6.0%

Senior Exchangeable Note Units were paid in full, which units consisted of

$53.9

million principal amount of our Senior Exchangeable Notes that matured and the final installment payment of

$2.1

million on our

11.0%

Senior Amortizing Notes.

December 28, 2017,

the Company and K. Hovnanian announced that they had entered into a commitment letter (the “Commitment Letter”) in respect of certain financing transactions with GSO Capital Partners LP on its own behalf and on behalf of

one

or more funds managed, advised or sub-advised by GSO (collectively, the “GSO Entities”), and had commenced a private offer to exchange with respect to the

8.0%

Notes (the “Exchange Offer”).

Pursuant to the Commitment Letter, the GSO Entities agreed to, among other things, provide the principal amount of the following: (i) a senior unsecured term loan credit facility (the “Unsecured Term Loan Facility”) to be borrowed by K. Hovnanian and guaranteed by the Company and the Notes Guarantors, pursuant to which the GSO Entities committed to lend K. Hovnanian Unsecured Term Loans consisting of

$132.5

million of initial term loans (the “Initial Term Loans”) on the settlement date of the Exchange Offer for purposes of refinancing K. Hovnanian’s

7.0%

Notes, and up to

$80.0

million of delayed draw term loans (the “Delayed Draw Term Loans”) for purposes of refinancing certain of K. Hovnanian’s

8.0%

Notes, in each case, upon the terms and subject to the conditions set forth therein, and (ii) a senior secured

first

lien credit facility (the “New Secured Credit Facility” and together with the Unsecured Term Loan Facility, the “New Credit Facilities”) to be borrowed by K. Hovnanian and guaranteed by the Notes Guarantors, pursuant to which the GSO Entities have committed to lend to K. Hovnanian up to

$125.0

million of senior secured

first

priority loans (the “New Secured Loans”) to fund the repayment of K. Hovnanian’s Secured Term Loans (K. Hovnanian may voluntarily repay the Secured Term Loans at any time from and after September

2018

) and for general corporate purposes, upon the terms and subject to the conditions set forth therein. In addition, pursuant to the Commitment Letter, the GSO Entities have committed to purchase, and K. Hovnanian has agreed to issue and sell, on

January 15, 2019 (

or such later date within

five

business days as mutually agreed by the parties working in good faith),

$25.0

million in aggregate principal amount of additional

10.5%

2024

Notes (the “Additional

10.5%

2024

Notes”) at a purchase price, for each

$1,000

principal amount of Additional

10.5%

2024

Notes, that would imply a yield equal to (a) the volume weighted average yield to maturity (calculated based on the yield to maturity during the

calendar day period ending on

one

business day prior to

January 15, 2019)

for the

10.5%

2024

Notes, minus (b)

0.50%,

upon the terms and subject to conditions set forth therein.

January 29, 2018,

K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Unsecured Term Loan Facility. K. Hovnanian borrowed the Initial Term Loans on

February 1, 2018

to fund, together with cash on hand, the redemption on

February 1, 2018

of all

$132.5

million aggregate principal amount of

7.0%

Notes, which resulted in a loss on extinguishment of debt of

$0.5

million. On May

29,

2018,

K. Hovnanian completed the redemption of

$65.7

million aggregate principal amount of the

8.0%

Notes (representing all of the outstanding

8.0%

Notes, excluding the

$26

million of

Notes held by the Subsidiary Purchaser (as defined below)) with approximately

$70.0

million in borrowings on the Delayed Draw Term Loans under the Unsecured Term Loan Facility (with the completion of this redemption, the remaining committed amounts under the Delayed Draw Term Loans may

not

be borrowed). This transaction resulted in a loss on extinguishment of debt of

$4.3

million for the

three

months ended July

31,

2018.

The Unsecured Term Loans bear interest at a rate equal to

5.0%

per annum and interest will be payable in arrears, on the last business day of each fiscal quarter. The Unsecured Term Loans will mature on

February 1, 2027,

which is the

ninth

anniversary of the

first

closing date of the Unsecured Term Loan Facility.

January 29, 2018,

K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent (the “Secured Administrative Agent”), and the GSO Entities entered into the New Secured Credit Facility. Availability under the New Secured Credit Facility will terminate on

December 28, 2019

and any outstanding New Secured Loans on such date shall convert to secured term loans maturing on

December 28, 2022.

When drawn, the New Secured Loans and the guarantees thereof will be secured by substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions, on a

first

lien basis relative to the liens securing K. Hovnanian’s

10.0%

2022

Notes and

10.5%

2024

Notes pursuant to an existing intercreditor agreement to which the collateral agent for the New Secured Credit Facility shall become a party.

The Secured Loans will bear interest at a rate per annum equal to the lesser of (a)

10.0%

per annum and (b) (i) the volume weighted average yield (calculated based on the yield to maturity during the

calendar day period ending on the business day before the closing date of the

first

borrowings under the New Secured Credit Facility (the “Applicable Period”)) of the

10.5%

2024

Notes, if available, or if such rate is

not

available for the

10.5%

2024

Notes, such rate in respect of K. Hovnanian’s secured debt securities having the largest traded volume during the Applicable Period (the “VWAY Rate”), minus (ii)

0.50%,

and interest will be payable in arrears, on the last business day of each fiscal quarter. If adequate and reasonable means do

not

exist for ascertaining the VWAY Rate as set forth in the preceding sentence, it shall instead be the rate calculated using the average of

three

quotations for the

10.5%

2024

Notes provided by

three

brokers of recognized standing.

The New Secured Credit Facility contains representations and warranties, with the accuracy of certain specified representations and warranties being a condition to the funding of the New Secured Loans on each date of funding, and affirmative and restrictive covenants that limit, among other things, and in each case subject to certain exceptions, the ability of the Company and certain of its subsidiaries, including K. Hovnanian, to incur additional indebtedness, pay dividends and make distributions on common and preferred stock, repurchase subordinated indebtedness and common and preferred stock, make other restricted payments, including investments, sell certain assets, incur liens, consolidate, merge, sell or otherwise dispose of all or substantially all of its assets and enter into certain transactions with affiliates. The New Secured Credit Facility also contains customary events of default which would permit the Secured Administrative Agent thereunder to exercise remedies with respect to the collateral securing the New Secured Loans and declare New Secured Loans to be immediately due and payable if

not

cured within applicable grace periods, including the failure to make timely payments on the New Secured Loans, including any interest and fees due in connection therewith, or other material indebtedness, the failure to satisfy covenants, the material inaccuracy of representations or warranties made, cross acceleration to other material indebtedness, and specified events of bankruptcy and insolvency.

The terms and covenants of the New Secured Credit Facility are effective as of

January 29, 2018,

the date of execution of the New Secured Credit Facility. However, the obligations of the lenders thereunder to make New Secured Loans under the New Secured Credit Facility on the applicable borrowing dates are subject to the satisfaction of certain terms and conditions precedent set forth therein, including requiring K. Hovnanian to use the net cash proceeds therefrom to repay K. Hovnanian’s Secured Term Loan Facility.

February 1, 2018,

K. Hovnanian accepted all of the

$170.2

million aggregate principal amount of

8.0%

Notes validly tendered and

not

validly withdrawn in the Exchange Offer (representing

72.14%

of the aggregate principal amount of

8.0%

Notes outstanding prior to the Exchange Offer), and in connection therewith, K. Hovnanian issued

$90.6

million aggregate principal amount of its

13.5%

Senior Notes due

2026

(the “New

2026

Notes”) and

$90.1

million aggregate principal amount of its

5.0%

Senior Notes due

2040

(the “New

2040

Notes” and together with the New

2026

Notes, the “New Notes”) under a new indenture. Also, as part of the Exchange Offer, K. Hovnanian at Sunrise Trail III, LLC, a wholly-owned subsidiary of the Company (the “Subsidiary Purchaser”), purchased for

$26.5

million in cash an aggregate of

$26.0

million in principal amount of the

8.0%

Notes (the “Purchased

8.0%

Notes”). The New Notes are issued by K. Hovnanian and guaranteed by the Notes Guarantors, except the Subsidiary Purchaser, which does

not

guarantee the New Notes. The New

2026

Notes bear interest at

13.5%

per annum and mature on

February 1, 2026.

The New

2040

Notes bear interest at

5.0%

per annum and mature on

February 1, 2040.

Interest on the New Notes is payable semi-annually on

February 1

and

August 1

of each year, beginning on

August 1, 2018,

to holders of record at the close of business on

January 15

July 15,

as the case

may

be, immediately preceding each such interest payment date. The Exchange Offer was treated as a substantial modification of debt. The New Notes were recorded at fair value (based on management's estimate using available trades for similar debt instruments) on the date of the issuance of the New Notes, which equaled

$103.0

million for the New

2026

Notes and

$44.0

million for the New

2040

Notes, resulting in a premium on the New

2026

Notes and a discount on the New

2040

Notes, and a loss on extinguishment of debt of

$0.9

million for the

nine

months ended

July 31, 2018.

May 30, 2018,

K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee, executed the Second Supplemental Indenture, dated as of

May 30, 2018 (

the “Supplemental Indenture”), to the Indenture governing the New Notes. The Supplemental Indenture eliminated the covenant restricting certain actions with respect to the Purchased

8.0%

Notes, which covenant had included requirements that (A) K. Hovnanian and the guarantors of the New Notes would

not,

(i) prior to

June 6, 2018,

redeem, cancel or otherwise retire, purchase or acquire any Purchased

8.0%

Notes or (ii) make any interest payments on the Purchased

8.0%

Notes prior to their stated maturity, and (B) K. Hovnanian and the guarantors of the New Notes would

not,

and would

not

permit any of their subsidiaries to (i) sell, transfer, convey, lease or otherwise dispose of any Purchased

8.0%

Notes other than to any subsidiary of the Company that is

not

K. Hovnanian or a guarantor of the New Notes or (ii) amend, supplement or otherwise modify the Purchased

8.0%

Notes or the indenture under which they were issued with respect to the Purchased

8.0%

Notes, subject to certain exceptions. In addition, the Supplemental Indenture eliminated events of default related to the eliminated covenant. On

May 30, 2018,

K. Hovnanian paid the overdue interest on the Purchased

8.0%

Notes that was originally due on

May 1, 2018

and as a result of such payment, the “Default” under the Indenture governing the

8.0%

Notes was cured.

January 16, 2018,

K. Hovnanian, Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, executed the Second Supplemental Indenture, dated as of

January 16, 2018,

to the indenture governing the

10.0%

2022

Notes and

10.5%

2024

Notes, dated as of

July 27, 2017 (

as supplemented, amended or otherwise modified), among K. Hovnanian, the Notes Guarantors and Wilmington Trust, National Association, as Trustee and Collateral Agent, giving effect to the proposed amendments to such indenture solely with respect to the

10.5%

2024

Notes, which were obtained in a consent solicitation of the holders of the

10.5%

2024

Notes, and which eliminated the restrictions on K. Hovnanian’s ability to purchase, repurchase, redeem, acquire or retire for value the

2019

Notes and refinancing or replacement indebtedness in respect thereof.

Secured Obligations

Our

$75.0

million Secured Term Loan Facility (the “Secured Term Loan Facility”) has a maturity of

August 1, 2019

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 Secured 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 Secured Term Loans so prepaid (any prepayment of the Secured Term Loans made on or after

February 1, 2019

are without any prepayment premium).

The

10.0%

2022

Notes have a maturity of

July 15, 2022

and bear interest at a rate of

10.0%

per annum payable semi-annually on

January 15

and

July 15

of each year, to holders of record at the close of business on

January 1

and

July 1,

as the case

may

be, immediately preceding such interest payment dates. The

10.0%

2022

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

July 15, 2019

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian

may

also redeem some or all of the

10.0%

2022

Notes at

105.0%

of principal commencing

July 15, 2019,

102.50%

of principal commencing

July 15, 2020

and at

100.0%

of principal commencing

July 15, 2021.

In addition, K. Hovnanian

may

also redeem up to

35.0%

of the aggregate principal amount of the

10.0%

2022

Notes prior to

July 15, 2019

with the net cash proceeds from certain equity offerings at

110.0%

of principal.

The

10.5%

2024

Notes have a maturity of

July 15, 2024

and bear interest at a rate of

10.5%

per annum payable semi-annually on

January 15

and

July 15

of each year, to holders of record at the close of business on

January 1

and

July 1,

as the case

may

be, immediately preceding such interest payment dates. The

10.5%

2024

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

July 15, 2020

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” K. Hovnanian

may

also redeem some or all of the

10.5%

2024

Notes at

105.25%

of principal commencing

July 15, 2020,

102.625%

of principal commencing

July 15, 2021

and at

100.0%

of principal commencing

July 15, 2022.

In addition, K. Hovnanian

may

also redeem up to

35.0%

of the aggregate principal amount of the

10.5%

2024

Notes prior to

July 15, 2020

with the net cash proceeds from certain equity offerings at

110.50%

of principal.

All of K. Hovnanian’s obligations under the Secured Term Loan Facility are guaranteed by the Notes Guarantors. The Secured Term Loan Facility and the guarantees thereof are secured in accordance with the terms of the Secured Term Loan Facility and security documents relating thereto by liens on substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions, on a

first

lien priority basis relative to the

10.0%

2022

Notes and the

10.5%

2024

Notes (and on a

first

lien super priority basis relative to future

first

lien indebtedness). At

July 31, 2018,

the aggregate book value of the real property that constituted collateral securing the Secured Term Loans was

$456.7

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. Cash and cash equivalents collateral that secured the Secured Term Loans was

$155.4

million as of

July 31, 2018,

which included

$24.4

million of restricted cash collateralizing a bond and 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. In addition, collateral securing the Secured Term Loans includes equity interest in K Hovnanian and the subsidiary Notes Guarantors.

All of K. Hovnanian’s obligations under the

10.0%

2022

Notes and the

10.5%

2024

Notes are guaranteed by the Notes Guarantors. In addition to pledges of the equity interests in K. Hovnanian and the subsidiary Notes Guarantors which secure the

10.0%

2022

Notes and the

10.5%

2024

Notes, the

10.0%

2022

Notes and the

10.5%

2024

Notes and the guarantees thereof are also secured in accordance with the terms of the indenture governing such Notes and security documents related thereto by pari passu liens on substantially all of the assets owned by K. Hovnanian and the Notes Guarantors, in each case subject to permitted liens and certain exceptions (the collateral securing the

10.0%

2022

Notes and the

10.5%

2024

Notes is the same as that securing the Secured Term Loans). The liens securing the

10.0%

2022

Notes and the

10.5%

2024

Notes rank junior to the liens securing the Secured Term Loans and any other future secured obligations that are senior in priority with respect to the assets securing the

10.0%

2022

Notes and the

10.5%

2024

Notes.

Our

9.5%

Senior Secured Notes (the

“9.5%

2020

Notes”) have a maturity of

November 15, 2020,

and bear interest at a rate of

9.5%

per annum, payable semi-annually on

February 15

and

August 15

of each year, 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%

2020

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%

2020

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%

2020

Notes prior to

November 15, 2018

with the net cash proceeds from certain equity offerings at

109.5%

of principal.

The

5.0%

2021

Notes and the

2.0%

2021

Notes were issued as separate series under an indenture, but have substantially the same terms other than with respect to interest rate and related redemption provisions, and vote together as a single class. The

5.0%

2021

Notes bear interest at a rate of

5.0%

per annum and mature on

November 1, 2021

and the

2.0%

2021

Notes bear interest at a rate of

2.0%

per annum and mature on

November 1, 2021.

Interest on the

2021

Notes is payable semi-annually on

May 1

and

November 1

of each year, to holders of record at the close of business on

April 15

and

October 15,

as the case

may

be, immediately preceding such interest payment dates. 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

9.5%

2020

Notes and the

2021

Notes are guaranteed by the Notes Guarantors and the members of the JV Holdings Secured Group. The guarantees of the JV Holdings Secured Group with respect to the

2021

Notes and the

9.50%

2020

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

first

-priority lien on substantially all of the assets of the members of the JV Holdings Secured Group. As of

July 31, 2018,

the collateral securing the guarantees included (

)

$86.6

million of cash and cash equivalents, which included

$0.8

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); (

)

$164.2

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 owned by 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

$96.0

million as of

July 31, 2018;

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, the Unsecured Revolving Credit Facility, the Unsecured Term Loan Facility and the Secured Term Loan Facility, and thus have

not

guaranteed such indebtedness.

Senior Notes

February 1, 2018,

K. Hovnanian borrowed the Initial Term Loans in the amount of

$132.5

million under the Unsecured Term Loan Facility, and proceeds of such Initial Term Loans, together with cash on hand, were used to redeem all of its outstanding

$132.5

million aggregate principal amount of

7.0%

Notes (upon redemption, all

7.0%

Notes were cancelled).

As discussed above, the

8.0%

Notes were the subject of the Exchange Offer that closed on

February 1, 2018

and, on

May 29, 2018,

K. Hovnanian completed the redemption of

$65.7

million aggregate principal amount of the

8.0%

Notes, which was funded with borrowings of the Delayed Draw Term Loans under the Unsecured Term Loan Facility (upon redemption, such redeemed

8.0%

Notes were cancelled).

Unsecured Revolving Credit Facility

June 2013,

K. Hovnanian, as borrower, and we and certain of our subsidiaries, as guarantors, entered into a

five

-year,

$75.0

million unsecured revolving credit facility (the “Unsecured Revolving Credit Facility”) with Citicorp USA, Inc., as administrative agent and issuing bank, and Citibank, N.A., as a lender. The Unsecured Revolving Credit Facility, which facility size was reduced to

$26.0

million in June

2018,

is available for both letters of credit and general corporate purposes. Outstanding borrowings under the Unsecured Revolving Credit Facility accrue interest at an annual rate equal to either, as selected by K. Hovnanian, (i) the alternate base rate plus the applicable spread determined on the date of such borrowing or (ii) an adjusted London Interbank Offered Rate (“LIBOR”) rate plus the applicable spread determined as of the date

two

business days prior to the

first

day of the interest period for such borrowing. As of

July 31, 2018,

there were

$26.0

million of borrowings and

$3.8

million of letters of credit outstanding, which were collateralized by

$3.9

million of cash, under the Unsecured Revolving Credit Facility. As of

October 31, 2017,

there were

$52.0

million of borrowings and

$14.6

million of letters of credit outstanding under the Unsecured Revolving Credit Facility. As of

July 31, 2018,

we believe we were in compliance with the covenants under the Unsecured Revolving Credit Facility. This facility has a final maturity date in

September 2018.

In addition to the Unsecured Revolving Credit Facility, we have certain stand–alone cash collateralized letter of credit agreements and facilities under which there was a total of

$10.0

million and

$1.7

million letters of credit outstanding at

July 31, 2018

and

October 31, 2017,

respectively. These agreements and facilities require us to maintain specified amounts of cash as collateral in segregated accounts to support the letters of credit issued thereunder, which will affect the amount of cash we have available for other uses. At

July 31, 2018

and

October 31, 2017,

the amount of cash collateral in these segregated accounts was

$10.3

million and

$1.7

million, respectively, which is reflected in “Restricted cash and cash equivalents” on the Condensed Consolidated Balance Sheets.