Bankrupt Orleans Homebuilders of Bensalem, Pa., on Wednesday said its board of directors approved a "stalking horse" bid of $170 million plus assumption of $52.6 million in community-specific liabilities from public builder NVR of Reston, Va.
Orleans, which declared bankruptcy on March 1, expects other companies to submit bids and plans a bankruptcy court-supervised auction for June 23. All cash deposits on bids are due by noon on 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, Orleans' executive vice president and CFO, said that "[w]ith 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 timeframe 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-progess units in two communities in New York State, as well as Orleans' community property management subsidiary, mortgage broker affiliate; income tax refunds and other cash balances; and the cash surrender value of the Company's corporate-owned life insurance policies.
Work will continue on homes under construction in all communities in the company's 11 divisions in eight states, including on homes under construction in the New York communities not included in the bid, as well as the closing of home deliveries in all communities.
Should NVR emerge the winning bidder, some Orleans markets would fit into NVR's primarily Mid-Atlantic footprint, which includes Maryland, Virginia, West Virginia, Pennsylvania, New York, New Jersey, Delaware, Ohio, North Carolina, South Carolina, and Tennessee.
Orleans currently 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.
Orleans disclosed in its bankruptcy filing that it had obtained a non-binding letter of intent to sell the company to an unidentified bidder prior to the filing. That bid was rejected by 17 lenders, leading to the bankruptcy filing.
Orleans Homebuilders currently employs approximately 225 people.
Shares of NVR closed up 3.1% at $749.43 Wednesday. The company provided no comentary on the deal beyond an 8-K document filed Wednesday afternoon with the Securities and Exchange Commission.
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 headstart on due diligence, significant presence already in many of OHB's markets (not shared with many other large publics), 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 break-up fee, but would lead a competitor to pay a higher price for OHB's land."
Reichardt also pointed out the deals' geographic advantages to NVR, estimating that more than half of Orleans communities are in the Philadelphia, Richmond, and Charlotte markets where NVR already operates. He also estimated an average lot cost of $39,535 under the terms of this deal and suggested that, based on 2009 results, the Orleans assets would add 8% to NVRs orders and closings and add 25% to its community count.
Still, Reichardt questioned what NVR would do with any unfinished lots it might acquire in the deal insomuch as NVR has not in recent history developed its own land.