Senior Notes and Credit Facilities

Senior notes and credit facilities balances as of

October 31, 2019

and

October

31,

2018,

were as follows:

(In thousands)	October 31, 2019(1)	October 31, 2018(1)
Senior Secured Notes:
9.5% Senior Secured Notes due November 15, 2020	$-	$75,000
2.0% Senior Secured Notes due November 1, 2021	-	53,203
5.0% Senior Secured Notes due November 1, 2021	-	141,797
10.0% Senior Secured Notes due July 15, 2022	218,994	440,000
10.5% Senior Secured Notes due July 15, 2024	211,391	400,000
7.75% Senior Secured 1.125 Lien Notes due February 15, 2026	350,000	-
10.5% Senior Secured 1.25 Lien Notes due February 15, 2026	282,322	-
11.25% Senior Secured 1.5 Lien Notes due February 15, 2026	103,141	-
Total Senior Secured Notes	$1,165,848	$1,110,000
Senior Notes:
8.0% Senior Notes due November 1, 2019 (2)	$-	$-
13.5% Senior Notes due February 1, 2026	90,590	90,590
5.0% Senior Notes due February 1, 2040	90,120	90,120
Total Senior Notes	$180,710	$180,710
Senior Unsecured Term Loan Credit Facility due February 1, 2027	$202,547	$202,547
Senior Secured Revolving Credit Facility (3)	$-	$-
Net discounts and premium	$(49,145)	$(39,934)
Net debt issuance costs	$(19,970)	$(14,085)
Total notes payable, net of discount, premium and debt issuance costs	$1,479,990	$1,439,238

(

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

October 31, 2019

and

2018

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

$19.1

million and

$35.6

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 Consolidated Balance Sheets of HEI. On

November 1, 2019,

the maturity of the

8.0%

Senior Notes was extended to

November 1, 2027.

(

) At

October 31, 2019,

provides for up to

$125.0

million in aggregate amount of senior secured

first

lien revolving loans. Availability thereunder will terminate on

December 28, 2022.

As of

October 31, 2019,

future maturities of our borrowings were as follows (

in thousands

Fiscal Year Ended October 31, (1)
2020		$-
2021		-
2022		218,994
2023		-
2024		211,391
Thereafter		1,118,720
Total		$1,549,105

(

) Does

not

include our

$125.0

million Senior Secured Revolving Credit Facility under which there were

borrowings outstanding as of

October 31, 2019.

General

Except for K. Hovnanian, the issuer of the notes and borrower under the Credit Facilities (as defined below), our home mortgage subsidiaries, certain of our title insurance subsidiaries, joint ventures and subsidiaries holding interests in our joint ventures, we and each of our subsidiaries are guarantors of the Credit Facilities, the senior secured notes and senior notes outstanding at

October 31, 2019 (

collectively, the “Notes Guarantors”), which include the subsidiaries that had guaranteed (collectively, the “Former New Secured Group Guarantors”) K. Hovnanian’s

9.50%

Notes,

2.000%

Notes and

5.000%

Notes (each as defined under “—Fiscal

2019”

below). As a result of the

2019

Transactions (as defined in and described under “—Fiscal

2019”

below), K. Hovnanian’s obligations under the Credit Facilities, the senior secured notes and senior notes are guaranteed by the Notes Guarantors (including the Former New Secured Group Guarantors) and, in the case of the Senior Secured Revolving Credit Facility and the senior secured notes, will be secured in accordance with the terms of the applicable Debt Instrument by substantially all of the assets owned by K. Hovnanian and the Notes Guarantors (including the assets owned by the Former New Secured Group Guarantors), subject to permitted liens and certain exceptions.

The credit agreements governing the Credit Facilities and the indentures governing the senior secured and senior notes (together, the “Debt Instruments”) outstanding at

October 31, 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 non-recourse indebtedness, certain permitted indebtedness and refinancing indebtedness), pay dividends and make distributions on common and preferred stock, repay certain indebtedness prior to its respective stated maturity, repurchase 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 of their assets and enter into certain transactions with affiliates. The Debt Instruments also contain customary 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 Agreement (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

October 31, 2019,

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

If our consolidated fixed charge coverage ratio is less than

2.0

1.0,

as defined in the applicable Debt Instrument, 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 (in the case of the payment of dividends on preferred stock, our secured debt leverage ratio must also be less than

4.0

1.0

), 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 actively analyze and evaluate our capital structure and explore transactions to simplify our capital structure and to strengthen our balance sheet, including those that reduce leverage and/or extend maturities, and will seek to do so with the right opportunity. We

may

also continue to make debt purchases and/or exchanges for debt or equity from time to time through tender offers, exchange 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 under “ - Fiscal

2018”

), the Company issued

$25.0

million in aggregate principal amount of the Additional

10.5%

2024

Notes to the GSO Entities (defined below under “- Fiscal

2018”

) 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.

October 31, 2019,

K. Hovnanian, the Company, the Notes Guarantors, Wilmington Trust, National Association, as administrative agent, and affiliates of certain investment managers (the “Investors”), as lenders, entered into a credit agreement (the “Secured Credit Agreement” and, together with the Term Loan Facility, the “Credit Facilities”) providing for up to

$125.0

million in aggregate amount of Secured Revolving Loans to be used for general corporate purposes, upon the terms and subject to the conditions set forth therein. Secured Revolving Loans are to be borrowed by K. Hovnanian and guaranteed by the Notes Guarantors. Availability under the Secured Credit Agreement will terminate on

December 28, 2022

and the Secured Revolving Loans will bear interest at a rate per annum equal to

7.75%,

and interest will be payable in arrears, on the last business day of each fiscal quarter. In connection with the entering into of the Secured Credit Agreement, K. Hovnanian terminated the

2018

Secured Credit Facility (as defined below under “—Fiscal

2018”

October 31, 2019,

K. Hovnanian completed private placements of senior secured notes as follows: (i) K. Hovnanian issued an aggregate of

$350.0

million of

7.75%

Senior Secured

1.125

Lien Notes due

2026

(the

“1.125

Lien Notes”) in part pursuant to a Note Purchase Agreement, dated

October 31, 2019,

among K. Hovnanian, the Notes Guarantors and certain Investors as purchasers thereof (the

“1.125

Lien Notes Purchase Agreement”) and in part pursuant to the Exchange Agreement (as defined below), with the proceeds from the sale of

1.125

Lien Notes under the

1.125

Lien Notes Purchase Agreement used to fund the cash payments to certain Exchanging Holders (as defined below) under the Exchange Agreement; and (ii) K. Hovnanian issued an aggregate of

$282.3

million of

10.5%

Senior Secured

1.25

Lien Notes due

2026

(the

“1.25

Lien Notes”), pursuant to a Note Purchase Agreement (the

“1.25

Lien Notes Purchase Agreement”), dated

October 31, 2019,

among K. Hovnanian, the Notes Guarantors and certain Investors as purchasers thereof (the

“1.25

Lien Notes Purchasers”), the proceeds of which were used to fund the Satisfaction and Discharge (as defined below).

In addition, on

October 31, 2019,

K. Hovnanian completed private exchanges of (i) approximately

$221.0

million aggregate principal amount of its

10.0%

Senior Secured Notes due

2022

(the

“10.0%

2022

Notes”) and approximately

$114.0

million aggregate principal amount of its

10.5%

Senior Secured Notes due

2024

(the

“10.5%

2024

Notes” and, together with the

10.0%

2022

Notes, the “Second Lien Notes”) held by certain participating bondholders (the “Exchanging Holders”) for a portion of the

$350.0

million aggregate principal amount of

1.125

Lien Notes described above and/or cash, and (ii) approximately

$99.6

million aggregate principal amount of its

10.5%

2024

Notes held by certain of the Exchanging Holders for approximately

$103.1

million aggregate principal amount of

11.25%

Senior Secured

1.5

Lien Notes due

2026

(the

“1.5

Lien Notes” and, together with the

1.125

Lien Notes and the

1.25

Lien Notes, the “New Secured Notes”), pursuant to an Exchange Agreement, dated

October 30, 2019 (

the “Exchange Agreement”), among K. Hovnanian, the Notes Guarantors and the Exchanging Holders.

October 31, 2019,

K. Hovnanian issued notices of redemption for all of its outstanding

9.50%

Senior Secured Notes due

2020

(the

“9.50%

Notes”),

2.000%

Senior Secured Notes due

2021

(the

“2.000%

Notes”) and

5.000%

Senior Secured Notes due

2021

(the

“5.000%

Notes”) and deposited with Wilmington Trust, National Association, as trustee under the indenture (the

“9.50%

Notes Indenture”) governing the

9.50%

Notes and as trustee under the indenture (the

“5.000%/2.000%

Notes Indenture”) governing the

5.000%

Notes and the

2.000%

Notes sufficient funds to satisfy and discharge (collectively, the “Satisfaction and Discharge”) (i) the

9.50%

Indenture and to fund the redemption of all outstanding

9.50%

Notes and to pay accrued and unpaid interest on the redeemed notes to, but

not

including, the

November 10, 2019

redemption date and (ii) the

5.000%/2.000%

Indenture and to fund the redemption of all outstanding

5.000%

Notes and

2.000%

Notes and to pay accrued and unpaid interest on the redeemed notes to, but

not

including, the

November 30, 2019

redemption date. Proceeds from the issuance of the

1.25

Lien Notes together with cash on hand were used to fund the Satisfaction and Discharge. Upon the Satisfaction and Discharge of the

9.50%

Notes Indenture, all of the collateral securing the

9.50%

Notes was released and the restrictive covenants and events of default contained therein ceased to have effect and upon the Satisfaction and Discharge of the

5.000%/2.000%

Notes Indenture, all of the collateral securing the

5.000%

Notes and the

2.000%

Notes was released and the restrictive covenants and events of default contained therein ceased to have effect as to both such series of Notes.

The Company and K. Hovnanian obtained the consent of certain lenders/holders under its existing debt instruments to amend such debt instruments in connection with the issuance of the New Secured Notes and the execution of the indentures governing the New Secured Notes and the Secured Credit Agreement. The Company, K. Hovnanian and the guarantors also amended such debt instruments to add the Former New Secured Group Guarantors as guarantors thereunder and, in the case of the Second Lien Notes, to add the Former New Secured Group Guarantors as pledgors and grantors of their assets (subject to permitted liens and certain exceptions) to secure such Second Lien Notes.

The transactions that were consummated on

October 31, 2019,

as described, are collectively referred to herein as the

“2019

Transactions.” The

2019

Transactions resulted in a loss in extinguishment of debt of

$42.4

million for the year ended

October 31, 2019,

which is included as “Loss on Extinguishment of Debt” on the Consolidated Statement of Operations.

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%

Senior Notes due

2019

(on

November 1, 2019,

the maturity of such Notes was extended to

2027

) (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 certain of its subsidiaries, 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%

Senior Notes due

2019

(the

“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 the

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

“2018

Secured Credit Facility”) to be borrowed by K. Hovnanian and guaranteed by certain of its subsidiaries, 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

nine

months ended

July 31, 2018.

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 year ended

October 31, 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 subsidiary guarantors named therein, Wilmington Trust, National Association, as administrative agent, and the GSO Entities entered into the Secured Credit Facility, which provided for a

$125.0

million secured revolving credit facility. This Secured Credit Facility was terminated on

October 31, 2019

in connection with the

2019

Transactions.

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

“2026

Notes”) and

$90.1

million aggregate principal amount of its

5.0%

Senior Notes due

2040

(the

“2040

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

2026

Notes and the

2040

Notes were issued by K. Hovnanian and guaranteed by certain of its subsidiaries, except the Subsidiary Purchaser, which does

not

guarantee the

2026

Notes or the

2040

Notes. The

2026

Notes bear interest at

13.5%

per annum and mature on

February 1, 2026.

The

2040

Notes bear interest at

5.0%

per annum and mature on

February 1, 2040.

Interest on the

2026

Notes and the

2040

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 fiscal year ended

October 31, 2018.

The

2026

Notes and the

2040

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

2026

Notes and the

2040

Notes.

K. Hovnanian’s

2026

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

February 1, 2025

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, 2025,

K. Hovnanian

may

also redeem some or all of the

2026

Notes at a redemption price equal to

100.0%

of their principal amount.

K. Hovnanian’s

2040

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

February 1, 2020

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, 2020

and prior to

February 1, 2021

K. Hovnanian

may

redeem some or all of the

2040

Notes at a redemption price equal to

102.50%

of their principal amount and at any time and from time to time after

February 1, 2020,

K. Hovnanian

may

also redeem some or all of the

2040

Notes at a redemption price equal to

100.0%

of their principal amount.

Fiscal

2017

During the year ended

October 31, 2017,

we repurchased in open market transactions

$17.5

million aggregate principal amount of

7.0%

Notes,

$14.0

million aggregate principal amount of

8.0%

Notes and

6,925

senior exchangeable note units representing

$6.9

million stated amount of senior exchangeable note 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 on Extinguishment of Debt” on the Consolidated Statement of Operations. This gain was offset by

$0.4

million of costs associated with the

9.50%

2020

Notes issued during the

fourth

quarter of fiscal

2016

and the debt transactions during the

third

quarter of fiscal

2017

discussed below.

July 27, 2017,

K. Hovnanian issued

$440.0

million aggregate principal amount of

10.0%

2022

Notes and

$400.0

million aggregate principal amount of

10.5%

2024

Notes. The net proceeds from these issuances together with available cash were used to (i) purchase

$575,912,000

principal amount of

7.25%

Senior Secured First Lien Notes due

2020

(the

“7.25%

First Lien Notes”),

$87,321,000

principal amount of

9.125%

Senior Secured Second Lien Notes due

2020

(the

“9.125%

Second Lien Notes” and, together with the

7.25%

First Lien Notes, the

“2020

Secured Notes”) and all

$75,000,000

principal amount of

10.0%

Senior Secured Second Lien Notes due

2018

(the

“10.0%

Second Lien Notes”) that were tendered and accepted for purchase pursuant to K. Hovnanian’s offers to purchase for cash (the “Tender Offers”) any and all of the

7.25%

First Lien Notes, the

9.125%

Second Lien Notes and the

10.0%

Second Lien Notes and to pay related tender premiums and accrued and unpaid interest thereon to the date of purchase and (ii) satisfy and discharge all obligations (and cause the release of the liens on the collateral securing such indebtedness) under the indentures under which the

7.25%

First Lien Notes, the

9.125%

Second Lien Notes and the

10.0%

Second Lien Notes were issued and in connection therewith to call for redemption on

October 15, 2017

and on

November 15, 2017

all remaining

$1,088,000

principal amount of

7.25%

First Lien Notes and all remaining

$57,679,000

principal amount of

9.125%

Second Lien Notes, respectively, that were

not

validly tendered and purchased in the applicable Tender Offer in accordance with the redemption provisions of the indentures governing the

2020

Secured Notes. These transactions resulted in a loss on extinguishment of debt of

$42.3

million for fiscal

2017,

which is included as “Loss on Extinguishment of Debt” on the Consolidated Statement of Operations.

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. 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.

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.

The

1.125

Lien Notes have a maturity of

February 15, 2026

and bear interest at a rate of

7.75%

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

1.125

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

February 15, 2022

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” In addition, up to

35%

of the original aggregate principal amount of the

1.125

Lien Notes

may

be redeemed with the net cash proceeds from certain equity offerings at

107.75%

of principal at any time prior to

February 15, 2022.

K. Hovnanian

may

also redeem some or all of the

1.125

Lien Notes at

103.875%

of principal commencing

February 15, 2022,

101.937%

of principal commencing

February 15, 2023

and at

100.0%

of principal commencing

February 15, 2024.

The

1.25

Lien Notes have a maturity of

February 15, 2026

and bear interest at a rate of

10.5%

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

1.25

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

February 15, 2022

100.0%

of their principal amount plus an applicable “Make-Whole Amount.” In addition, up to

35%

of the original aggregate principal amount of the

1.25

Lien Notes

may

be redeemed with the net cash proceeds from certain equity offerings at

110.5%

of principal at any time prior to

February 15, 2022.

K. Hovnanian

may

also redeem some or all of the

1.25

Lien Notes at

105.25%

of principal commencing

February 15, 2022,

102.625%

of principal commencing

February 15, 2023

and at

100.0%

of principal commencing

February 15, 2024.

The

1.5

Lien Notes have a maturity of

February 15, 2026

and bear interest at a rate of

11.25%

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

1.5

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

February 15, 2026

100.0%

of their principal amount.

Each series of New Secured Notes and the guarantees thereof are secured by the same assets (including the assets owned by the Former New Secured Group Guarantors) that secure the Secured Credit Agreement and the Second Lien Notes. Among the New Secured Notes, the liens securing the

1.125

Lien Notes are senior to the liens securing the

1.25

Lien Notes and the

1.5

Lien Notes and any other future secured obligations that are junior in priority with respect to the assets securing the

1.125

Lien Notes, and the liens securing the

1.25

Lien Notes are senior to the liens securing the

1.5

Lien Notes and any other future secured obligations that are junior in priority with respect to the assets securing the

1.25

Lien Notes, in each case, with respect to the assets securing such New Secured Notes. In respect of K. Hovnanian’s other secured obligations, the liens securing the New Secured Notes are junior to the liens securing the Secured Credit Agreement, are on a parity with any future secured obligations that are equal in priority with respect to the assets securing the applicable series of New Secured Notes and are senior to the liens securing the Second Lien Notes and any other future secured obligations that are junior in priority with respect to the assets securing the applicable series of New Secured Notes.

As of

October 31, 2019,

the collateral securing the Secured Credit Facility, the New Secured Notes and the Second Lien Notes would have included (in the case of the Secured Credit Facility and the New Secured Notes, such collateral will be perfected in accordance with the terms of the applicable Debt Instrument) (

)

$136.9

million of cash and cash equivalents, which included

$19.9

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); (

)

$504.7

million aggregate book value of real property, 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 joint venture holding companies with an aggregate book value of

$188.9

million.

Senior Notes

February 1, 2018,

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

$132.5

million under the 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 Term Loan Facility (upon redemption, such redeemed

8.0%

Notes were cancelled).

Other

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 with Citicorp USA, Inc., as administrative agent and issuing bank, and Citibank, N.A., as a lender. This facility matured and was paid in full in

September 2018

with borrowings under the

2018

Secured Credit Facility and cash on hand.

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

$19.2

million and

$12.5

million letters of credit outstanding at

October 31, 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

October 31, 2019

and

October 31, 2018,

the amount of cash collateral in these segregated accounts was

$19.9

million and

$12.7

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