Bankruptcy Hits Orleans Homebuilders

The economic downturn that started with the now infamous sub-prime mortgage property crash hit homebuilders in particular very hard. Many homebuilders ended up with a gamut of unsold homes and massive debts. One such builder is property giant Orleans Homebuilders Inc. To their credit the company has managed to stave off bankruptcy for the last two years. But recently the homebuilder filed for Chapter 11 bankruptcy protection at Wilmington. The final move it made was to seek an extension to a $350 million credit facility but this was not approved by its 17 senior secured lenders. The loan expired February 12, a date already extended from its original maturity in mid-December last year.

Under Chapter 11 procedures, Orleans has to either sell the company or reorganize its debts. Actually, the property developer did manage to find a potential buyer for its business but failed to conclude the transaction before the February 22 loan maturity deadline and after an extension to the maturity date was not granted, Orleans defaulted on their loans and subsequently had to file for bankruptcy. This was revealed at a press release by the company recently. No further comment was given on the matter by Grant P. Herdler, the Chief Financial Officer for Orleans.

Orleans was given $40 million to continue carrying out its operations while under bankruptcy pending the approval of the bankruptcy court. The company has also sought the court’s permission to continue all its home warranty programs. Meanwhile all the deposits of its clientele are safely held in escrow and thus are safe. In addition, closings that had been temporarily postponed over the last two weeks will now resume.

As at the end of last year, Orleans Homebuilders had assets worth $440 million and liabilities of $498.8 million. This includes debts of $419.1 million. Among its major unsecured trade creditors are 84 Lumber Co. in Eighty Four, Pa., to which it owed $1.47 million, Robert K. Foster Inc., a plumbing contractor company in Newfield, N.J., a $1.15 million creditor and Sunrise Concrete Co. in Rushland, Bucks County, that had $677,234 owing to them. Orleans’ total debt to trade contactors amounted to $17.74 million according to the bankruptcy filing.

But by far the largest unsecured collective debt Orleans owes is to entities known as collateralized debt obligations (CDOs) created by Taberna Realty Finance Trust, a Philadelphia company that merged with RAIT Financial Trust in 2006. The amount owing to CDOs is $93.75 million.

Naturally, Orleans’ financial problems also resulted in a reduction in its workforce. It had 990 workers in June 2006 but today is left with about 300.