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alstry (35.36)

Private Theft of a Public Company?

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May 16, 2008 – Comments (7)

Today, HOV announced that it is commencing with a Private Placement to raise $600 million dollars to be secured by substantially all of the assets of the company.  The only assets that will have priority over this will be any debt to the revolver bankers.  Do you think the bankers would let anyone get above them?

What is amazing about this offering, the Hovnanian Family could buy this private placement and basically own the entire company free and clear subject to only the bank's revolver interest and wipe out all shareholders and subordinated debt holders.

Effectively this is a stealth conversion of the shareholder's interest in a private placement offering that the current shareholders have no chance of participating.  The participants in this private placement have first priority on substantially all of the assets of the company to the detriment of current shareholders and subordindated public debt holders.

It is absolutely amazing!!!!!!

What should be investigated is whether the Hovnanian Family is participating in this offering.  If so they should be prosecuted and sent directly to jail for making misleading statements and/or behavior leading up to this offering.

In my career, I have never seen anything like this nor as potentially premeditated as the steps leading up to this private placement.  This is not the theft of a few art pieces in a museam worth millions, this is theft of an entire publicly traded company worth hundreds of millions....now that is an accomplishment if gone unchecked.

7 Comments – Post Your Own

#1) On May 16, 2008 at 10:17 AM, klemenv (99.75) wrote:

So that is the reason that Hovnian opened sharply higher :)

By the way, why don't you compare two headline, Bloomberg and Yahoo regardning housing:

Yahoo: "Housing posts surprising rebound in April"

Bloomberg: "U.S. Builders Broke Ground on Fewest Houses Since '91 (Update3)"

 

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#2) On May 16, 2008 at 11:53 AM, cabuilderboy (87.73) wrote:

You might want to slow down on the conspiracy theory. "What is amazing about this offering, the Hovnanian Family could buy this private placement",  "Effectively this is a stealth conversion of the shareholder's interest in a private placement offering that the current shareholders have no chance of participating.",  "In my career, I have never seen anything like this nor as potentially premeditated as the steps leading up to this private placement". Please, isn't that all a bit much?

In this market, numerous companies are looking for cash, espcecially homebuilders. Refinancing debt is a normal part of business finance. Linking a public company refinancing to an intentional covert family privatization is laughable, escpecially since Ara and the family have the controlling interest anyway. If you have ever been involved with one (a private placement), the lawers, auditors, bankers and their respective insurance companies wouldn't stick their necks out that far for micro-cap public company.

What is more amazing is that they can find investors for the private placement. Who would lend money to a builder in this environment, when no one can figure out a Builder's Book Value? I sometimes enjoy your self undulgent rants, but this one was a real stretch.

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#3) On May 16, 2008 at 11:59 AM, alstry (35.36) wrote:

What are you talking about?

The effectively sold the company in this private placement and the existing shareholders potentially get nothing.  Same with the subordinated debt holders....those are the guys that are really hosed because they at least may have had something coming.

Right now, the subordinated debt holders just got $600 million put in front of them......just wait until that debt gets revalued this weekend.  As far as the stockholders go, they have pretty much known their position was practically valuless for a while.

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#4) On May 16, 2008 at 1:40 PM, alstry (35.36) wrote:

To be fair, I am unclear wether this offering of $600 million takes priority over HOV's existing $2.2 Billion in debt or subordinate.

Either way, for a company that just raised $150 million in an equity offering, raising an additional $600 million taking total debt to over $2.7 Billion in a slowing sales environment sure puts shareholders much deeper into the hole.

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#5) On May 16, 2008 at 2:04 PM, cabuilderboy (87.73) wrote:

I am not doubting your dillution premis, it is the conspiracy theory you raise. If they can find someone to give them the money, you have to give them a little credit in this market.

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#6) On May 16, 2008 at 3:24 PM, alstry (35.36) wrote:

Absolutely,

If I was originally mistaken in that the debt was being offered senior to current outstanding debt, then that would have been basically selling the company out from underneath the existing share and debt holders. That would have been beyond amazing.  That is where the conspiracy thoughts came in.

Quite frankly, although HOV is in much better shape that SPF or WCI, I can't fatham who would loan this company $600 million dollars subordinate to $2.2 Billion in debt in the current environment with HOV's current balance sheet.

If they couldn't pay down debt with the existing debt load, how can they function with an additional $600 million of debt service and a slowing sales environment?????

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#7) On May 17, 2008 at 10:08 AM, alstry (35.36) wrote:

Actually, after yesterday's after hours release, it appears that HOV is pretty much replacing $600 million of revolver obligations at around 6% with this $600 million dollar offering at 11 1/2%.

There goes another $30 million per year out of shareholders pockets.  The extra interest for a couple years coulda bought Ara a new jet.

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