Orleans Homebuilders Inc., a fixture on the Pennsylvania and New Jersey construction scene for generations, has filed voluntary petitions under Chapter 11 of the U.S. Bankruptcy Code for itself and most of its operating subsidiaries.
The petition was filed in the U.S. Bankruptcy Court for the District of Delaware in Wilmington, the company announced March 1.
Certain Orleans subsidiaries are excluded from these petitions, including its mortgage services subsidiary, Alambry Funding, Inc., which provides mortgage brokerage services for customers and financial institutions but does not underwrite any customer mortgages.
"We regret the hardship that this filing will have on many of our trade suppliers,” said company CEO, president and chairman Jeffrey P. Orleans. “We are arranging new financing that should be available almost immediately, pending Court approval and syndication. We expect these new funds will be sufficient to support our operations while we are under Court jurisdiction."
The company issued this statement:
“The voluntary petitions result from the final maturity of the Company's $350 million senior secured Second Amended Restated Revolving Credit Loan Agreement (as amended, the "Credit Facility") on February 12, 2010, and the inability to reach agreement on an extension of the Credit Facility with 100% of the approximately 17-member bank group, or obtain a replacement of the Credit Facility. There is currently approximately $311 million of cash borrowings outstanding under the Credit Facility, excluding any letters of credit.
“The Company also announced that it has reached agreement with certain of its lenders for up to $40 million of debtor-in-possession (DIP) financing, pending Court approval and syndication. The new financing consists of up to $25 million in cash revolving borrowing availability and up to $15 million of availability for replacement letters of credit under the Credit Facility (the "DIP Revolving Facility").
All of the Company's 11 operating divisions in eight states will continue business in the ordinary course and without interruption. The Company has filed motions requesting immediate Court approval for the continuation of all home warranty and mortgage incentive programs and to preserve all pre-petition escrowed customer deposits on contracted homes.
“The Company believes all existing customer deposits are protected in segregated escrow accounts and are not affected by today's filing. Building will now continue on homes under construction in all communities, as well as the closing of certain home deliveries temporarily postponed in the past two weeks.”
Added Orleans, the CEO: "We have done everything we could to generate cash flow and to reduce operating expenses in light of falling home prices and reduced housing demand, yet still provide a high level of service to our many customers. We reduced our bank debt by approximately 40%, from $513 million at Jan. 1, 2007, to approximately $311 million today.
"During this protracted downturn, most of our lenders, junior creditors and vendors had been supportive of the Company. In early December 2009, we approved a non-binding term sheet for a maturity extension of the Credit Facility; in mid-December 2009, the Company and 100% of the bank group extended the maturity of the Credit Facility to February 12, 2010. During this period of time, we executed a non-binding letter of intent relating to the sale of the Company. However, the lenders could not achieve 100% lender approval of the documentation for a maturity extension or any other modification beyond February 12, 2010. The Credit Facility then matured, and we could not complete the sale. We intend to continue to pursue a sale of the Company through a negotiated sale, a plan of reorganization or other auction under Chapter 11. We want to reassure our many current and future homebuyers that we will seek to continue to service their needs during this period. We appreciate the support of our many loyal vendors, customers and employees."
The company has filed first-day motions asking the court to approve, among other things, payment of employee wage and benefit charges that were incurred before the petitions were filed, future employee wages and benefits, incurred commissions, the continuation of certain customer sales incentive programs, and the continued use of cash collateral and existing cash management systems.
Although Chapter 11 law prohibits payments for any invoices that were outstanding at the time of the filing without prior court approval, it does provide greater protection to those providers of goods and services who conduct business with the company from this point forward. The company has also filed a motion to honor prepetition claims for certain critical vendors whose goods and services are deemed essential to operations.
The company is providing information about the reorganization at www.orleanshomesreorg.com.
Based in suburban Philadelphia, Orleans Homebuilders Inc. develops, builds and markets single-family homes, townhouses and condominiums in Pennsylvania, New Jersey, New York, North Carolina, Virginia, Illinois and Florida.