Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We enter into debt obligations primarily to support general corporate purposes, including the operations of our subsidiaries. We are subject to interest rate risk on our debt. For fixed rate debt, changes in interest rates generally affect the fair value of the debt instrument, but not our earnings or cash flows. Conversely, for variable rate debt, changes in interest rates generally do not impact the fair value of the debt instrument, but may affect our future earnings and cash flows. We generally have no obligation to prepay our debt before maturity, and, as a result, interest rate risk and changes in fair market value should not have a significant impact on our fixed rate debt until we are required or elect to refinance or repurchase such debt. Under our current policies, we do not use interest rate derivative instruments to manage our exposure to changes in interest rates.
The following tables present principal cash flows by scheduled maturity, weighted average effective interest rates and the estimated fair value of our debt obligations as of November 30, 2023 and 2022 (dollars in thousands):
As of November 30, 2023 and for the Years Ending November 30, Fair Value at
November 30,
2023
2024 2025 2026 2027 2028 Thereafter Total
Fixed Rate $ — $ — $ — $ 300,000 $ — $ 1,040,000 $ 1,340,000 $ 1,260,725
Weighted Average Effective Interest Rate — % — % — % 7.1 % — % 5.5 % 5.9 %
Variable Rate (a) $ — $ — $ 360,000 $ — $ — $ — $ 360,000 $ 360,000
Weighted Average Effective Interest Rate — % — % 6.8 % — % — % — % 6.8 %
(a) The interest rate for our variable rate debt, which is solely comprised of the Term Loan, represents the weighted average interest rate in effect at November 30, 2023. Based upon the amount of variable rate debt outstanding at November 30, 2023, and holding the variable rate debt balance constant, each 100 basis-point increase in the interest rate would increase the interest we incur by approximately $3.6 million per year.
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As of November 30, 2022 and for the Years Ending November 30, Fair Value at
November 30,
2022
2023 2024 2025 2026 2027 Thereafter Total
Fixed Rate $ — $ — $ — $ — $ 300,000 $ 1,040,000 $ 1,340,000 $ 1,205,875
Weighted Average Effective Interest Rate — % — % — % — % 7.1 % 5.5 % 5.9 %
Variable Rate (b)
$ — $ — $ — $ 360,000 $ 150,000 $ — $ 510,000 $ 510,000
Weighted Average Effective Interest Rate — % — % — % 5.6 % 5.1 % — % 5.4 %
(b) The interest rates for our variable rate debt, which was comprised of borrowings outstanding under the Credit Facility and the Term Loan, represents the weighted average interest rates in effect at November 30, 2022.
Unconsolidated Joint Ventures. The tables above do not include debt of our unconsolidated joint ventures. For a discussion pertaining to the debt of our homebuilding and financial services unconsolidated joint ventures, see Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.
Our financial services unconsolidated joint venture, KBHS, is exposed to interest rate risk as it relates to its lending activities, including originating mortgage loans and providing IRLCs to customers. KBHS enters into best efforts forward sale commitments with secondary market investors to manage the risk of adverse interest rate movements that could impact the fair value of IRLCs. Best efforts forward sale commitments allow KBHS to agree on the sales price of the underlying loans that will be realized upon their sale into the secondary market. KBHS does not engage in speculative or trading derivative activities. KBHS’ entire loan portfolio is held for sale and subject to best efforts forward sale commitments. Further information is provided in Note 9 – Investments in Unconsolidated Joint Ventures in the Notes to Consolidated Financial Statements in this report.
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