What changed in this filing

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Item 1A. Risk Factors

2020-11-20 compared with 2019-11-25 · 98 added, 78 removed, 201 unchanged (47% of the section changed)

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These risks and uncertainties, together with other factors described elsewhere in this report, have the potential to affect our business, financial condition, results of operations, cash flows, strategies or prospects in a material and adverse manner.

Risks Related to our Business and our Industry

Public health issues such as a major epidemic or pandemic could adversely affect our business or financial results.

and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public health and public perception of health risk.

In December 2019, C-19 emerged in the Wuhan region of China and subsequently spread worldwide.

The World Health Organization declared C-19 a pandemic, resulting in federal, state and local governments and private entities mandating various restrictions, requiring closure of non-essential businesses for a period of time.

In almost all of the municipalities across the U.S.

where we operate, residential construction and financial services have been deemed essential businesses as part of critical infrastructure, and we have continued our homebuilding, lot development and financial services operations in those markets where allowed.

We implemented operational protocols to comply with social distancing and other health and safety standards as required by federal, state and local government agencies, taking into consideration guidelines of the Centers for Disease Control and Prevention and other public health authorities.

Our results of operations are affected by economic conditions, including macroeconomic conditions and levels of business confidence and consumer confidence.

There is significant uncertainty regarding the extent to which and how long C-19 and its related effects will impact the U.S.

economy and level of employment, capital markets, secondary mortgage markets, consumer confidence, demand for our homes and availability of mortgage loans to homebuyers.

The extent to which C-19 impacts our operational and financial performance will depend on future developments, including the duration and spread of C-19 and the impact on our customers, trade partners and employees, all of which are highly uncertain and cannot be predicted.

If C-19 has a significant negative impact on economic conditions over a prolonged period of time, our results of operations and financial condition could be adversely impacted.

The homebuilding and lot development industries are cyclical and affected by changes in economic, real estate or other conditions that could adversely affect our business or financial results.

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Deployments of U.S.

military personnel to foreign regions, terrorist attacks, other acts of violence or threats to national security and any corresponding response by the United States or others, related domestic or international instability or civil unrest may cause an economic slowdown in the markets where we operate, which could adversely affect our business.

Public health issues such as a major epidemic or pandemic could adversely affect our business.

and other countries have experienced, and may experience in the future, outbreaks of contagious diseases that affect public perception of health risk.

In the event of a widespread, prolonged, actual or perceived outbreak of a contagious disease, our operations could be negatively impacted by a reduction in customer traffic or other factors which could reduce demand for new homes.

military personnel to foreign regions, terrorist attacks, other acts of violence or threats to national security and any corresponding response by the United States or others, domestic or international instability or civil unrest may cause an economic slowdown in the markets where we operate, which could adversely affect our business.

If we experience any of the foregoing, potential customers may be less willing or able to buy our homes.

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There likely will be periods in the future when financial market upheaval will increase our cost of capital or limit our ability to access the public debt markets or obtain bank financing.

Our homebuilding operations utilize a $1.59 billion senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $2.5 billion , subject to certain conditions and availability of additional bank commitments.

Our homebuilding revolving credit facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the revolving credit commitment.

The maturity date of such facility is October 2, 2024 .

Forestar and its subsidiaries, our financial services subsidiaries, and certain of our other subsidiaries are not guarantors under our homebuilding revolving credit facility or our homebuilding senior notes.

Our homebuilding operations utilize a $1.59 billion 5-year senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $2.5 billion, subject to certain conditions and availability of additional bank commitments.

Our 5-year homebuilding revolving credit facility also provides for the issuance of letters of credit with a sublimit equal to 100% of the revolving credit commitment.

The maturity date of the 5-year facility is October 2, 2024.

We also have a $375 million 364-day senior unsecured homebuilding revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $550 million, subject to certain conditions and availability of additional bank commitments.

The maturity date of the 364-day facility is May 27, 2021.

Forestar has a $380 million senior unsecured revolving credit facility with an uncommitted accordion feature that could increase the size of the facility to $570 million, subject to certain conditions and availability of additional bank commitments.

The Forestar revolving credit facility also provides for the issuance of letters of credit with a sublimit equal to the greater of $100 million and 50% of the revolving credit commitment.

The maturity date of such facility is October 2, 2022 .

The maturity date of the facility is October 2, 2022.

The Forestar revolving credit facility is guaranteed by Forestar’s wholly-owned subsidiaries that are not immaterial subsidiaries or have not been designated as unrestricted subsidiaries.

The Forestar revolving credit facility is not guaranteed by us or our other subsidiaries.

Our mortgage subsidiary utilizes a $900 million mortgage repurchase facility to finance the majority of the loans it originates.

The capacity of the facility increases, without requiring additional commitments, to $1.1 billion for approximately 45 days at fiscal year end.

Our mortgage subsidiary utilizes a $1.35 billion mortgage repurchase facility to finance the majority of the loans it originates.

The capacity of the facility increased, without requiring additional commitments, to $1.575 billion for approximately 45 days around September 30, 2020 and increases again for approximately 30 days around December 31, 2020.

The capacity can also be increased to $1.8 billion subject to the availability of additional commitments.

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Such changes affecting our mortgage repurchase facility may also make it more difficult or costly to sell the mortgages that we originate.

We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations, and support other general corporate and operational needs, and we regularly evaluate our opportunities to raise additional capital.

We have an automatically effective universal shelf registration statement filed with the SEC in August 2018 , registering debt and equity securities that we may issue from time to time in amounts to be determined.

Also, Forestar has an effective shelf registration statement filed with the SEC in September 2018 , registering $500 million of equity securities, of which $394.3 million remains available.

As market conditions permit, we may issue new debt or equity securities through the public capital markets or obtain additional bank financing to fund our projected capital requirements or provide additional liquidity.

We believe that our existing cash resources, our homebuilding revolving credit facility, our mortgage repurchase facility and our ability to access the capital markets will provide sufficient liquidity to fund our near-term working capital needs and debt obligations, including the maturity of $500 million aggregate principal amount of homebuilding senior notes in fiscal 2020 .

We believe that Forestar’s existing cash resources together with borrowings under the Forestar revolving credit facility and its ability to access the capital markets will provide sufficient liquidity to fund its near-term working capital needs, including the maturity of its convertible senior notes in fiscal 2020 .

Adverse changes in economic, homebuilding or capital market conditions could negatively affect our business, liquidity and financial results, restrict our ability to obtain additional capital or increase our costs of capital.

We regularly assess our projected capital requirements to fund growth in our business, repay debt obligations, pay dividends, repurchase our common stock and support other general corporate and operational needs, and we regularly evaluate our opportunities to raise additional capital.

Horton has an automatically effective universal shelf registration statement filed with the SEC in August 2018, registering debt and equity securities that may be issued from time to time in amounts to be determined.

Forestar also has an effective shelf registration statement filed with the SEC in September 2018, registering $500 million of equity securities.

At September 30, 2020, $394.3 million remained available, and $100 million of this availability is reserved for sales under Forestar’s at-the-market equity offering program established in August 2020.

As market conditions permit, we may issue new debt or equity securities through the capital markets or obtain additional bank financing to fund our projected capital requirements or provide additional liquidity.

We believe that our existing cash resources, revolving credit facilities, mortgage repurchase facility and ability to access the capital markets or obtain additional financing will provide sufficient liquidity to fund our near-term working capital needs and debt obligations, including the maturity of $400 million aggregate principal amount of our homebuilding senior notes in fiscal 2021.

Adverse changes in economic, homebuilding or capital market conditions due to C-19 or otherwise could negatively affect our business, liquidity and financial results, restrict our ability to obtain additional capital or increase our costs of capital.

Reductions in the availability of mortgage financing provided by government agencies, changes in government financing programs, a decrease in our ability to sell mortgage loans on attractive terms or an increase in mortgage interest rates could decrease our buyers’ ability to obtain financing and adversely affect our business or financial results.

The mortgage loans originated by our financial services operations are primarily eligible for sale to Fannie Mae, Freddie Mac and Ginnie Mae and are sold to third-party purchasers.

The mortgage loans originated by our financial services operations are primarily eligible for sale to Fannie Mae, Freddie Mac or Ginnie Mae and are typically sold to third-party purchasers.

The secondary market for mortgage loans continues to primarily desire securities backed by Fannie Mae, Freddie Mac or Ginnie Mae, and we believe the liquidity these agencies provide to the mortgage industry is important to the housing market.

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Additionally, a reduction in the availability of financing provided by these institutions could adversely affect interest rates, mortgage availability and sales of new homes and mortgage loans.

During fiscal 2019 , approximately 93% of the mortgage loans sold by DHI Mortgage were sold to four major financial entities, the largest percentage of which purchased 32% of the total loans sold.

During fiscal 2020, approximately 66% of our mortgage loans were sold directly to Fannie Mae or into securities backed by Ginnie Mae and 28% were sold to two other major financial entities.

On an ongoing basis, we seek to establish loan purchase arrangements with additional financial entities.

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Changes, restrictions or significant premium increases in FHA programs in the future may negatively affect the availability or affordability of FHA financing, which could adversely affect our ability to sell homes.

Some of our customers may qualify for 100% financing through programs offered by the VA, USDA and certain other housing finance agencies.

Some of our customers may qualify for 100% financing through programs offered by the VA and the USDA and certain other housing finance agencies.

These programs are subject to changes in regulations, lending standards and government funding levels.

There can be no assurances that these programs or other programs will continue to be available in our homebuilding markets or that they will be as attractive to our customers as the programs currently offered, which could negatively affect our sales.

Mortgage rates are currently low as compared to most historical periods;

however, the Federal Reserve Board could raise its benchmark rate.

Mortgage rates are currently low compared to most historical periods;

however, market conditions could change causing mortgage rates to rise in the future.

When interest rates increase, the cost of owning a home increases, which will likely reduce the number of potential homebuyers who can obtain mortgage financing and could result in a decline in the demand for our homes.

In the latter part of fiscal 2020, due to reduced liquidity in the secondary market related to remedies provided in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) to borrowers of residential loans, we began retaining mortgage servicing rights on some of our originations.

As servicer for these loans, we may have to advance payments to the mortgage-backed securities (MBS) bondholders to the extent there are insufficient collections to satisfy the required principal and interest remittances of the underlying mortgage-backed securities.

The risks associated with our land and lot inventory could adversely affect our business or financial results.

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Investments in land, lots, home inventories and rental properties can expose us to risks of economic loss and asset impairments if housing conditions weaken or if we are unsuccessful in implementing our growth strategies.

On October 5, 2017 , we acquired 75% of the outstanding shares of Forestar for $558.3 million , pursuant to the terms of a merger agreement entered into in June 2017 and approved by a vote of Forestar’s shareholders.

We currently own approximately 66% of the outstanding shares of Forestar.

Forestar is a publicly traded residential lot development company with operations in 51 markets and 20 states as of September 30, 2019 .

Forestar is making significant investments in land acquisition and development to expand its residential lot development business across a geographically diversified national platform.

In October 2017, we acquired 75% of the outstanding shares of Forestar and at September 30, 2020, we owned 65% of its outstanding shares.

Forestar is a publicly traded residential lot development company with operations in 49 markets across 21 states as of September 30, 2020.

Forestar’s strategy is focused on making significant investments in land acquisition and development to expand its residential lot development business across a geographically diversified national platform and consolidating market share in the fragmented U.S.

lot development industry.

Our homebuilding divisions acquire finished lots from Forestar in accordance with the master supply agreement between the two companies, and we provide Forestar certain administrative, compliance, operational and procurement services through a shared services agreement.

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Such an incident could generate significant negative publicity and have a corresponding impact on our reputation, our relationships with relevant regulatory agencies or governmental authorities, and our ability to attract customers and employees, which in turn could have a material adverse effect on our financial results and liquidity.

Damage to our corporate reputation or brands from negative publicity could adversely affect our business, financial results and/or stock price.

Adverse publicity related to our company, industry, personnel, operations or business performance may cause damage to our corporate reputation or brands and may generate negative sentiment, potentially affecting the performance of our business or our stock price, regardless of its accuracy or inaccuracy.

Negative publicity can be disseminated rapidly through digital platforms, including social media, websites, blogs and newsletters.

Customers and other interested parties value readily available information and often act on such information without further investigation and without regard to its accuracy.

The harm may be immediate without affording us an opportunity for redress or correction,

and our success in preserving our brand image depends on our ability to recognize, respond to and effectively manage negative publicity in a rapidly changing environment.

Adverse publicity or unfavorable commentary from any source could damage our reputation, reduce the demand for our homes or negatively impact the morale and performance of our employees, which could adversely affect our business.

Supply shortages and other risks related to acquiring land, building materials and skilled labor could increase our costs and delay deliveries.

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• shortages of materials;

volatile increases in the cost of materials, particularly increases in the price of lumber, drywall and cement, which are significant components of home construction costs.

• significant increases in the cost of materials, particularly increases in the price of lumber, drywall and cement, which are significant components of home construction costs.

In addition, tariffs, duties and/or trade restrictions imposed or increased on imported materials and goods that are used in connection with the construction and delivery of our homes, including steel, aluminum and lumber, may raise our costs for these items or for the products made with them.

These factors may cause construction delays or cause us to incur more costs building our homes.

If the level of new home demand increases significantly in future periods, the risk of shortages in residential lots, labor and materials available to the homebuilding industry will likely increase.

If the level of new home demand increases significantly in future periods, the risk of shortages and cost increases in residential lots, labor and materials available to the homebuilding industry will likely increase.

We are required to obtain performance bonds, the unavailability of which could adversely affect our results of operations and cash flows.

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Increases in the costs of owning a home could prevent potential customers from buying our homes and adversely affect our business or financial results.

Prior to the enactment of the Tax Cuts and Jobs Act (Tax Act), which was enacted into law on December 22, 2017, significant expenses of owning a home, including mortgage loan interest and state and local taxes, generally were deductible expenses for an individual’s federal income taxes, subject to various limitations.

The Tax Act established new limits on the federal tax deductions individual taxpayers may take on mortgage loan interest payments and on state and local taxes, including property taxes.

These changes could reduce the actual or perceived affordability of homeownership, which could adversely affect demand for and sales prices of new homes, especially in areas with relatively high housing prices or high state and local income taxes and real estate taxes.

Any further change in income tax laws by the federal or state government to eliminate or substantially reduce income tax benefits associated with homeownership could adversely affect demand for and sales prices of new homes.

Significant expenses of owning a home, including mortgage loan interest and state and local income and property taxes, have historically been deductible expenses for an individual’s federal income taxes, subject to various limitations.

The Tax Cuts and Jobs Act, which became effective January 1, 2018, established new limits on these federal tax deductions that could reduce the actual or perceived affordability of homeownership.

These or any further changes in income tax laws by the federal or state government to eliminate or substantially reduce income tax benefits associated with homeownership, could adversely affect demand for and sales prices of new homes, especially in areas with relatively high housing prices or high taxes.

In addition, increases in property tax rates by local governmental authorities, as experienced in some areas in response to reduced federal and state funding, could adversely affect the amount of financing our potential customers could obtain or their desire to purchase new homes.

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This matter could potentially result in requirements for us to perform additional compliance procedures and to pay monetary sanctions.

Government restrictions, standards, or regulations intended to reduce greenhouse gas emissions or potential climate change impacts are likely to result in restrictions on land development in certain areas and may increase energy, transportation, or raw material costs, which could reduce our profit margins and adversely affect our results of operations.

This is a particular concern in the western United States, where some of the most extensive and stringent environmental laws and residential building construction standards in the country have been enacted, and where we have business operations.

The subcontractors we rely on to perform the actual construction of our homes are also subject to a significant number of local, state and federal laws and regulations, including laws involving matters that are not within our control.

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As a result, our operations are subject to regular, extensive examinations by the applicable agencies.

In fiscal 2013, our mortgage subsidiary was subpoenaed by the United States Department of Justice (DOJ) regarding the adequacy of certain underwriting and quality control processes related to FHA loans originated and sold in prior years.

We have provided information related to these loans and our processes to the DOJ, and communications are ongoing.

The DOJ has to date not asserted any formal claim amount, penalty or fine.

Due to the significant increases in regulations in recent years, operating costs have increased for our mortgage operations.

The possibility of additional future regulations, changing rule interpretations and examinations by regulatory agencies may result in more stringent compliance standards and could adversely affect the results of our operations.

Additional future regulations or changing rule interpretations and examinations by regulatory agencies may result in more stringent compliance standards and could adversely affect the results of our operations.

Homebuilding, lot development and financial services are competitive industries, and competitive conditions could adversely affect our business or financial results.

The homebuilding and lot development industries are highly competitive.

Homebuilders compete not only for homebuyers, but also for desirable properties, financing, raw materials and skilled labor.

We compete with local, regional and national homebuilders and developers, and also with existing home sales, foreclosures and rental properties.

The competitive conditions in the homebuilding industry can negatively affect our sales volumes, selling prices and incentive levels, reduce our profit margins, and cause the value of our inventory or other assets to be impaired.

Competition can also affect our ability to acquire suitable land, raw materials and skilled labor at acceptable prices or terms, or cause delays in land development or in the construction of our homes.

The competitors to our financial services businesses include other title companies and mortgage lenders, including national, regional and local mortgage banks and other financial institutions.

Some of these competitors are subject to fewer governmental regulations and have greater access to capital than we do, and some of them may operate with different lending criteria than we do.

These competitors may offer a broader or more attractive array of financing and other products and services to potential customers than we do.

Our businesses compete with other companies across all industries to attract and retain highly skilled and experienced employees, managers and executives.

Competition for the services of these individuals increases as business conditions improve in the homebuilding, lot development and financial services industries and in the general economy.

If we are unable to attract and retain key employees, managers or executives, our business could be adversely affected.

Risks Related to our Indebtedness

We have significant amounts of debt and may incur additional debt, which could affect our financial health and our ability to raise additional capital to fund our operations or potential acquisitions.

As of September 30, 2019 , our consolidated debt was $3.4 billion , which consisted of $2.0 billion related to our homebuilding segment, $462.9 million related to our Forestar segment and $888.9 million related to our financial services segment.

We had $1.6 billion principal amount of our debt maturing before the end of fiscal 2020 , including $500 million principal amount of homebuilding senior notes, $888.9 million outstanding under the mortgage repurchase facility and $118.9 million principal amount of Forestar’s convertible senior notes.

The indentures governing our homebuilding senior notes do not restrict the incurrence of future unsecured debt by us or our homebuilding subsidiaries or the incurrence of secured or unsecured debt by our non-guarantor subsidiaries, and the agreement governing our homebuilding revolving credit facility allows us to incur a substantial amount of future unsecured debt.

Also, the indentures governing our homebuilding senior notes and the agreement governing our homebuilding revolving credit facility impose restrictions on our ability and on that of the guarantors under our homebuilding senior notes and our homebuilding revolving credit facility to incur debt secured by certain assets, but still permit us and our homebuilding subsidiaries to incur significant amounts of additional secured debt.

The Forestar revolving credit facility and the indenture governing Forestar’s senior notes impose restrictions on the ability of Forestar and its restricted subsidiaries to incur secured and unsecured debt, but still permit Forestar and its subsidiaries to incur a substantial amount of future secured and unsecured debt, and do not restrict the incurrence of future secured and unsecured debt by Forestar’s unrestricted subsidiaries.

As of September 30, 2020, our consolidated debt was $4.3 billion, which consisted of $2.5 billion related to our homebuilding segment, $1.1 billion related to our financial services segment and $641.1 million related to our Forestar segment.

We had $1.6 billion principal amount of our debt maturing before the end of fiscal 2021, including $400 million principal amount of homebuilding senior notes and $1.1 billion outstanding under the mortgage repurchase facility.

The indentures governing our homebuilding senior notes do not restrict the incurrence of future unsecured debt by us or our homebuilding subsidiaries or the incurrence of secured or unsecured debt by our non-guarantor subsidiaries, and the agreements governing our homebuilding revolving credit facilities allow us to incur a substantial amount of future unsecured debt.

Also, the indentures governing our homebuilding senior notes and the agreements governing our homebuilding revolving credit facilities impose restrictions on our ability and on that of the guarantors under our homebuilding senior notes and our homebuilding revolving credit facilities to incur debt secured by certain assets, but still permit us and our homebuilding subsidiaries to incur significant amounts of additional secured debt.

The Forestar revolving credit facility and the indentures governing Forestar’s senior notes impose restrictions on the ability of Forestar and its restricted subsidiaries to incur secured and unsecured debt, but still permit Forestar and its subsidiaries to incur a substantial amount of future secured and unsecured debt, and do not restrict the incurrence of future secured and unsecured debt by Forestar’s unrestricted subsidiaries.

The amount and the maturities of our debt and the debt of our subsidiaries could have important consequences.

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In addition, the agreements governing certain of our and our subsidiaries’ debt instruments contain the following financial covenants:

Homebuilding revolving credit facility.

Our homebuilding revolving credit facility contains financial covenants requiring the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if our leverage ratio exceeds a certain level.

A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under this revolving credit facility or cause any outstanding borrowings to become due and payable prior to maturity.

Homebuilding revolving credit facilities.

Our homebuilding revolving credit facilities contain financial covenants requiring the maintenance of a maximum allowable leverage ratio and a borrowing base restriction if our leverage ratio exceeds a certain level.

A failure to comply with these financial covenants could allow the lending banks to terminate the availability of funds under the revolving credit facilities or cause any outstanding borrowings to become due and payable prior to maturity.

Forestar’s revolving credit facility.

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Any difficulty experienced in complying with these covenants could make the renewal of the facility more difficult or costly.

In addition, although our financial services business is conducted through subsidiaries that are not restricted by the indentures governing our senior notes or the agreements governing our revolving credit facilities, the ability of our financial services subsidiaries to distribute funds to our homebuilding operations would be restricted in the event such distribution would cause an event of default under the mortgage repurchase facility or if an event of default had occurred under this facility.

under this facility.

Moreover, our right to receive assets from our financial services subsidiaries upon their liquidation or recapitalization is subject to the prior claims of the creditors of these subsidiaries.

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The instruments governing our indebtedness contain change of control provisions which could affect the timing of repayment.

Change of control purchase options under our homebuilding senior notes and change of control default under our homebuilding revolving credit facility.

Change of control purchase options under our homebuilding senior notes and change of control default under our homebuilding revolving credit facilities.

Upon the occurrence of both a change of control and a ratings downgrade event, each as defined in the indentures governing our homebuilding senior notes, we will be required to offer to repurchase such notes at 101% of their principal amount, together with all accrued and unpaid interest, if any.

Moreover, a change of control (as defined in our homebuilding revolving credit facility) would constitute an event of default under our homebuilding revolving credit facility, which could result in the acceleration of the repayment of any borrowings outstanding under the facility, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination of the commitments thereunder.

If repayment of more than $50 million outstanding under our homebuilding revolving credit facility were accelerated and such acceleration were not rescinded or such indebtedness were not satisfied, in either case within 30 days, an event of default would result under the indentures governing our homebuilding senior notes, entitling the trustee for the notes or holders of at least 25% in principal amount of the relevant series of notes then outstanding to declare all such notes to be due and payable immediately.

If purchase offers were required under the indentures for our homebuilding senior notes, repayment of the borrowings under our homebuilding revolving credit facility were required, or if the senior notes were accelerated, we can give no assurance that we would have sufficient funds to pay the required amounts.

Moreover, a change of control (as defined in our homebuilding revolving credit facilities) would constitute an event of default under our homebuilding revolving credit facilities, which could result in the acceleration of the repayment of any borrowings outstanding under the facilities, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination of the commitments thereunder.

If repayment of more than $50 million outstanding under our homebuilding revolving credit facilities were accelerated and such acceleration were not rescinded or such indebtedness were not satisfied, in either case within 30 days, an event of default would result under the indentures governing our homebuilding senior notes, entitling the trustee for the notes or holders of at least 25% in principal amount of the relevant series of notes then outstanding to declare all such notes to be due and payable immediately.

If purchase offers were required under the indentures for our homebuilding senior notes, repayment of the borrowings under our homebuilding revolving credit facilities were required, or if the senior notes were accelerated, we can give no assurance that we would have sufficient funds to pay the required amounts.

Change of control purchase option under Forestar’s notes and change of control default under the Forestar revolving credit facility.

Upon the occurrence of a change of control triggering event (as defined in the indenture governing Forestar’s notes), Forestar will be required to offer to repurchase Forestar’s notes at 101% of their principal amount, together with all accrued and unpaid interest, if any.

Upon the occurrence of a change of control triggering event (as defined in the indentures governing Forestar’s notes), Forestar will be required to offer to repurchase Forestar’s notes at 101% of their principal amount, together with all accrued and unpaid interest, if any.

A change of control (as defined in the Forestar revolving credit facility) with respect to Forestar would constitute an event of default under the Forestar revolving credit facility, which could result in the acceleration of the repayment of any borrowings outstanding under the facility, a requirement to cash collateralize all letters of credit outstanding thereunder and the termination of the commitments thereunder.

If the maturity of the Forestar revolving credit facility and/or other indebtedness of Forestar and its restricted subsidiaries together having an aggregate principal amount outstanding of $40 million or more is accelerated, an event of default would result under the indenture governing the Forestar notes, entitling the trustee for the Forestar notes or holders of at least 25% in aggregate principal amount of the then outstanding Forestar notes to declare all such Forestar notes to be due and payable immediately.

If purchase offers were required under the indenture for Forestar’s notes, repayment of the borrowings under Forestar’s revolving credit facility were required, or if Forestar’s notes were accelerated, we can give no assurance that Forestar would have sufficient funds to pay the required amounts.