Hovnanian Enterprises (HOV:NYSE) is a New Jersey homebuilder founded in 1959 by the Hovnanian family. The company designs, constructs, and sells single-family detached homes, attached townhomes and condos, along with active adult homes and other types of condos. The company offers homes for sale in 431 communities, 47 markets, and 19 states in the United States.

Hovnanian, like most of the other homebuilders, has been at the epicenter of the current economic slowdown. Despite numerous interest rate cuts and other measures by the Federal Reserve, homebuilders like Hovnanian remain in the doldrums. Their latest earnings report, released on May 5th, confirmed this. Another similarity to the other homebuilders is that Hovnanian is in need of liquidity. Many of the homebuilder companies need to rebuild their capital base in order to remain an ongoing enterprise. In an effort to rebuild their capital base, the company has made some very important moves in May.

First, Hovnanian announced on May 7th that they were making a secondary offering of 14 million shares of their common stock at $9.50 a share. This sale of stock raised $133 million for the company. On May 16th, Hovnanian announced some additional measures. The company is issuing $600 million of 5-year senior secured notes in a private placement to repay bank debt. These notes are being secured by “substantially all the assets owned by the company”.

The sale of the notes will lower their revolving bank credit line to $300 million. The sale of these notes is actually very positive for Hovnanian. It is unusual in this type of economic environment for a homebuilder to get such a deal from their banks. It seems to show a certain level of confidence in Hovnanian and their management team.

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