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NVR Makes Play for Orleans

Virginia-based NVR starts bidding for bankrupt Orleans Homebuilders' assets at $170 million.

The board of directors at bankrupt Orleans Homebuilders approved a “stalking horse” bid of $170 million plus assumption of $52.6 million in community-specific liabilities from Reston, Va.-based NVR in mid-April.

Orleans, which declared bankruptcy March 1, expects other companies to submit bids and plans a bankruptcy court-supervised auction for June 23. According to court filings, company management has contacted “138 potential investors and/or acquirers, 22 of which have signed nondisclosure agreements and started due diligence.”

Also expected to join the mix is the undisclosed third-party entity with which Orleans had entered into a non-binding letter of intent to acquire the Pennsylvania-based builder prior to its bankruptcy filing. However, the deal was rejected by 17 lenders, leading to the bankruptcy filing.

All cash deposits on bids are due by noon June 16. The minimum bid, including a breakup fee, has been set at $178 million.

The company in its most recent filings with the court listed bank debt alone of $311 million and total debt of approximately $407 million.

In a statement, Garry P. Herdler, executive vice president and CFO, said, “With the court process, our M&A advisors, and Phoenix Group encouraging other better and higher bids to emerge, the sale should culminate in a competitive auction to be held within a reasonable near-term time frame that will allow us to provide some definitive resolution for customers, vendors, and employees alike.”

NVR's bid is for most of the bankrupt company, which comprises roughly 4,300 lots and homes in various stages of construction, joint ventures excluding approximately 200 lots and work-in-progress units in two communities in New York, as well as Orleans' community property management subsidiary, mortgage broker affiliate, income tax refunds, and other cash balances, or the cash surrender value of the company's corporate-owned life insurance policies.

Building will continue on homes under construction in all communities in the company's 11 divisions in eight states, as will the closing of home deliveries in all communities.

Should NVR emerge the winning bidder, some of Orleans' markets would fit into NVR's mostly Mid-Atlantic footprint.

Wells Fargo Securities home building analyst Carl Reichardt was upbeat on the proposed deal.

“While we believe NVR is well-positioned to obtain the assets given its opening bid, a head start on due diligence, significant presence already in many of OHB's markets, and what we believe is a measurable construction cost advantage, we do believe other bidders may enter the fray,” he wrote in a research note. “We believe NVR will remain disciplined on price. If NVR is not the successful bidder, the company will not only receive the breakup fee, but would lead a competitor to pay a higher price for OHB's land.” —William Gloede

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