11.	Senior Notes and Credit Facilities

Senior notes and credit facilities balances as of

April 30, 2019

and

October

31,

2018,

were as follows:

(In thousands)	April 30, 2019(1)(2)	October 31, 2018(1)(2)
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$74,666	$74,561
2.0% Senior Secured Notes due November 1, 2021 (net of discount)	53,112	53,094
5.0% Senior Secured Notes due November 1, 2021 (net of discount)	136,533	135,571
10.0% Senior Secured Notes due July 15, 2022	436,066	435,461
10.5% Senior Secured Notes due July 15, 2024 (net of discount)	416,375	394,736
Total Senior Secured Notes, net of debt issuance costs	$1,116,752	$1,093,423
Senior Notes:
8.0% Senior Notes due November 1, 2019 (3)	$-	$-
13.5% Senior Notes due February 1, 2026 (including premium)	100,687	101,162
5.0% Senior Notes due February 1, 2040 (net of discount)	43,564	43,264
Total Senior Notes, net of debt issuance costs	$144,251	$144,426
Senior Unsecured Term Loan Credit Facility due February 1, 2027, net of debt issuance costs	$201,459	$201,389
Senior Secured Revolving Credit Facility (4)	$-	$-

(

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

April 30, 2019

and

October 31, 2018

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

$37.9

million and

$35.6

million, respectively.

(

) Unamortized debt issuance costs at

April 30, 2019

and

October 31, 2018

were

$13.0

million and

$14.1

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.

(

) Availability under the Secured Credit Facility will terminate on

December 28, 2019

and any loans thereunder on such date will convert to secured term loans maturing on

December 28, 2022.

General

Except for K. Hovnanian, the issuer of the notes and borrower under the Credit Facilities (as defined below), 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 Credit Facilities, the senior secured notes and senior notes outstanding at

April 30, 2019 (

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

9.50%

Senior Secured Notes due

2020

(the

“9.50%

2020

Notes” and 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 Credit Facilities and the indentures governing the notes (together, the “Debt Instruments”) outstanding at

April 30, 2019

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

9.50%

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 K. Hovnanian's previously outstanding

7.0%

Senior Notes due

2019

(the

“7.0%

Notes”) (which includes the 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 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 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 Debt Instruments also contain events of default which would permit the lenders or 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”) and loans made under the Secured Credit Facility (as defined below) (the “Secured Revolving Loans”) or 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, Secured Revolving Loans or 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 and Secured Revolving Loans, material inaccuracy of representations and warranties and with respect to the Term Loans and Secured Revolving Loans, a change of control, and, with respect to the Secured Revolving Loans and senior secured notes, the failure of the documents granting security for the Secured Revolving 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 Revolving Loans and senior secured notes to be valid and perfected. As of

April 30, 2019,

we believe we were in compliance with the covenants of the Debt Instruments.

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 Instruments, 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.

Fiscal

2019

January 15, 2019,

pursuant to the Commitment Letter (defined below) the Company issued

$25.0

million in aggregate principal amount of the Additional

10.5%

2024

Notes (defined below) to the GSO Entities (defined below) at a discount for a purchase price of

$21.3

million in cash. The Additional

10.5%

2024

Notes were issued as additional notes of the same series as the

10.5%

2024

Notes. The Additional

10.5%

2024

Notes and the guarantees are secured (subject to perfection timing requirements) by pari passu liens with the

10.5%

2024

Notes on substantially all of the assets of K. Hovnanian and the Notes Guarantors, subject to permitted liens and certain exceptions. See “—Secured Obligations” below.

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

$125.0

million of senior secured

first

priority loans to fund the repayment of K. Hovnanian’s then outstanding secured term loans 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 committed to purchase, and K. Hovnanian agreed to issue and sell, on

January 15, 2019,

$25.0

million in aggregate principal amount of additional

10.5%

2024

Notes (the “Additional

10.5%

2024

Notes”), 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 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 for the

three

and

six

months ended

April 30, 2018.

The Term Loans bear interest at a rate equal to

5.0%

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

February 1, 2027.

January 29, 2018,

K. Hovnanian, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Secured Credit Facility. Availability under the Secured Credit Facility will terminate on

December 28, 2019

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

December 28, 2022.

The Secured Revolving Loans and the guarantees thereof are secured (subject to perfection timing requirements under the terms of the Secured Credit Facility) 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 and Additional

10.5%

2024

Notes pursuant to an intercreditor agreement. The collateral securing the Secured Revolving Loans will be the same as that securing the

10.0%

2022

Notes and the

10.5%

2024

Notes and Additional

10.5%

2024

Notes. The Secured Revolving Loans bear interest at a rate equal to

10.0%

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

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 were 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 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, and resulted in a loss on extinguishment of debt of

$0.9

million for the

three

and

six

months ended

April 30, 2018.

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.

K. Hovnanian’s New

2026

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

February 1, 2026

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

February 1, 2019,

K. Hovnanian

may

also redeem some or all of the New

2026

Notes at a redemption price equal to

100.0%

of their principal amount.

K. Hovnanian’s New

2040

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

February 1, 2040

at a redemption price equal to

100.0%

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

February 1, 2040,

K. Hovnanian

may

also redeem some or all of the New

2040

Notes at a redemption price equal to

100.0%

of their principal amount.

January 16, 2018,

K. Hovnanian, the 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

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

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 which, subject to perfection timing requirements, secures the Secured Revolving Loans and the additional

10.5%

2024

Notes). The liens securing the

10.0%

2022

Notes and the

10.5%

2024

Notes rank junior to the liens securing the Secured Revolving Loans and any 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.

April 30, 2019,

the aggregate book value of the real property that constituted collateral securing the

10.0%

2022

Notes and

10.5%

2024

Notes was

$396.1

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

10.0%

2022

Notes and

10.5%

2024

Notes was

$85.7

million as of

April 30, 2019,

which included

$17.0

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.

The

9.50%

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

9.50%

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

9.50%

2020

Notes at a redemption price equal to

100%

of their principal amount.

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

April 30, 2019,

the collateral securing the guarantees included (

)

$44.5

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); (

)

$133.2

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

$181.0

million as of

April 30, 2019;

this equity is

not

pledged to secure, and is

not

collateral for, the

9.50%

2020

Notes or 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 Credit Facilities, and thus have

not

guaranteed such indebtedness.

Other

We have certain stand–alone cash collateralized letter of credit agreements and facilities under which there was a total of

$16.2

million and

$12.5

million letters of credit outstanding at

April 30, 2019

and

October 31, 2018,

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

April 30, 2019

and

October 31, 2018,

the amount of cash collateral in these segregated accounts was

$17.0

million and

$12.7

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