Orleans Homebuilders has canceled plans to auction off all its assets out of bankruptcy, including the agreement with NVR to make the first bid, opting instead to reorganize itself and emerge from Chapter 11 under its own 90-year-old name.
The company announced May 19 that its senior lenders support its plans to reorganize rather than sell off its assets. It said it plans to file a reorganization plan with the court by late summer and hopes to emerge from bankruptcy by late fall.
"Over the past several weeks, the company has been in active dialogue with a number of parties regarding its strategic options. It is clear from these discussions that pursuing a plan of reorganization appears to be the best course of action for the company and its constituents," said Mitchell B. Arden, a managing director of Phoenix Management, who has been serving as Orleans' chief restructuring officer, in the announcement. "The option to pursue a plan of reorganization means that the Orleans name and its operations may be preserved for the benefit of our people and the communities in which we work."
Even before Orleans files its reorganization plan, Arden said the company plans to restart building, selling, and marketing homes and hopes to have the financial support to do that in place in a few weeks.
There were no details offered about whether NVR would be paid a break-up fee for canceling the purchase agreement it had with NVR. Orleans' board of directors had approved a "stalking horse" bid of $170 million plus assumption of $52.6 million in community-specific liabilities from NVR. The purchase would have included 4,300 lots in its 11 divisions in eight states.
Orleans operates in southeastern Pennsylvania; central and southern New Jersey; Orange County, N.Y.; Charlotte, Raleigh, and Greensboro, N.C. (with some South Carolina communities); Richmond and Tidewater, Va.; Chicago; and Orlando, Fla.
Wells Fargo Securities analyst Carl Reichardt saw the news as a "modest negative" for NVR, largely because, he wrote in a research note, "we do not see many other scenarios whereby NVR could obtain such a significant number of lots in overlapping geographies." On the Orleans side, he wrote, "The potential emergence does underscore one of the key negatives we see in homebuilding's industry structure: weaker players obtaining lifelines and continuing to add excess shelter capacity to the market while growing lot supply, leading to lower growth rates, margins and returns on a per-company basis, all metrics which fail to match those of previous cycle peaks."