Orleans Homebuilders defaults on senior loans

Orleans Homebuilders Inc., of Bensalem, the Philadelphia area's oldest residential-construction company, is in default of loans to its senior lenders.

In a filing with the Securities and Exchange Commission, Orleans said the company and its 17 lenders had failed to agree on temporarily modifying the loan agreements or reaching other accommodations, meaning that "the final maturity of the credit facility occurred on Feb. 12, 2010, and the company is now in default, which entitles the lenders to all rights available to senior secured creditors."

Orleans officials did not respond yesterday to requests for comment.

In its SEC filing, the company said that it did not have the assets to repay the 17 lenders, which were said to be owed about $375 million.

As of Dec. 31, the filing said, Orleans had "liquidity" of just $17.4 million, defined as "the sum of cash and cash equivalents, restricted cash due from title companies, marketable securities, and net borrowing base availability," which was reported to the SEC as $5.7 million.

Orleans reported its net debt was $407.4 million and defined it as total mortgage and other note obligations plus subordinated notes, less the aggregate of cash and cash equivalents, marketable securities, and restricted cash due from title companies, but excluding restricted cash from customer deposits.

Those deposits total $7.2 million. Under the Pennsylvania Planned Communities Act, deposits placed by buyers in the 16 communities Orleans has in the state must be escrowed. Other states have different laws.

In a November interview, Orleans general counsel Lawrence Dugan said buyers' deposits were "not with the builders' accounts. They're in separate escrow accounts in Pennsylvania, New York, and New Jersey."

Real estate industry observers said yesterday that Orleans had several options: find an investor or group of investors; sell off buildable land to other companies; or file for Chapter 11 protection under the U.S. bankruptcy code and reorganize.

The SEC filing alluded to those possibilities in listing reasons that Orleans was unable to complete its financial reporting on time.

Many well-heeled builders that have survived the economic downturn have been bargain-hunting for land in prime locations in the last few months, because prices appear to be stabilizing and tax credits have reeled in hundreds of thousands of buyers.

As of Dec. 31, Orleans had 93 home communities in eight states, including Pennsylvania and New Jersey.

Starting in the late 1990s, Orleans - typically the No. 2 home builder in the region after Horsham's Toll Bros. Inc. - was on the acquisition trail, first taking over Parker Lancaster, which builds in Virginia and North Carolina; then Masterpiece Homes outside Orlando; and then Realen, at that time a Philadelphia-area builder with land in Illinois around Chicago.

In 2002, Forbes magazine ranked Orleans third on its list of the 200 best small companies. Fortune ranked the company 33d on its list of 100 fastest-growing companies.

But some of the country's biggest boom areas took the biggest hits when the housing market turned sour; Florida and Illinois are two of the leading foreclosure states.

Builders have trouble competing with cut-price foreclosures being sold by lenders. So, like many other builders nationwide, Orleans has been offering incentives to buyers, cutting income and profit margins to the bone.

That is why the SEC filing, noting that Orleans was anticipating a 43 percent increase in net orders between its second quarter of 2009 and the same period in 2010, said revenue would likely decrease 11 percent during the same period.

Since 1918, when Russian immigrant Alfred P. Orleans began building houses at Front and Rockland Streets in Philadelphia, the company has built about 90,000 houses in this area and other states.

Orleans' son, Marvin, who died in 1986, expanded operations into Florida. His grandson, Jeffrey P. Orleans, 63, currently is president, chairman of the board, and chief executive officer.

Read Orleans Homebuilders Inc.'s 8-K filing with the SEC at http://go.philly.com/orleansEndText