Hovnanian Enterprises, Inc.

A blueprint for bankruptcy? New Jersey-based residential home builder Hovnanian Enterprises, Inc. pays its bills on time - yet we're seeing an exceptional amount of financial risk in this company.

In 2018, CreditRiskMonitor® turned the spotlight on Hovnanian in a pair of blog posts, illuminating subscribers and prospects alike about creditors' spiked level exposure. Net sales plummeted for Hovnanian, its lowest level since fiscal 2014 on a trailing 12-month basis, and in all regions save for the Midwest U.S., revenue has declined significantly. Their FRISK® score has been at a "1" for more than a year's worth of time:

Hovnanian FRISK image

In this High Risk Report, we tear down the house that is Hovnanian. Credit and procurement managers reliant on trade payment data to determine financial risk will have their foundations rocked if and when Hovnanian meets Chapter 11. Given its weak performance – and limited cash flow – the company will likely be required to refinance its debt maturities since it won't be able to repay them. As such, the homebuilder is materially exposed to interest rate risk when rates inevitably rise and the proverbial can cannot be kicked further down the road.

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Our FRISK® score model incorporates four powerful risk inputs:

  • “Merton”-type model of stock market capitalization and volatility
  • Financial ratios, including those used in the Altman Z”-Score Model
  • Bond agency ratings from Fitch, Moody's, and DBRS Morningstar
  • Website click pattern data from CreditRiskMonitor® subscribers, representing key credit decision-makers at more than 35% of current Fortune 1000 companies plus thousands of other large companies worldwide

Since the start of 2017, the FRISK® score’s rate of success in capturing public company bankruptcy is 96%: 235 identified out of 243 bankruptcies. In any given year, you can count on one hand the times we miss – and in those outlier cases, the circumstances deal with unusual, unforeseen events such as natural disasters and CEO fraud.

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About High Risk Reports

Our High Risk Reports feature companies that are exhibiting a significantly high level of financial distress, as indicated by our proprietary FRISK® score.

The reports highlight the factors that have pushed a company's score lower on the "1" (worst) to "10" (best) FRISK® score, which is 96% accurate in predicting bankruptcy over a 12-month period. The High Risk Reports also includes analysis on financial indicators such as the company’s DBT index, stock performance, financial ratios and how it is performing relative to its industry peers.

The ultimate goal of the High Risk Report series is two-part: provide an early warning for those doing business with an increasingly distressed company and inform of the many signals that should be examined when assessing financial risks.