Orleans Homebuilders, the Bensalem, Pa.-based builder with 11 operating divisions in eight states, on Monday became the latest big builder to seek court protection from its creditors when it petitioned the federal bankruptcy court in Wilmington, Del., under Chapter 11 of the U.S. Bankruptcy Code.

As of Dec. 31, 2009, Orleans had $440 million in total assets and $498.8 million in total liabilities, which include $419.1 million in debt.

It filed its bankruptcy petition only two weeks after a 17-member bank group could not achieve 100% approval to extend the maturity date for Orleans’ $350 million senior credit facility, which has an estimated $311 million of cash borrowings outstanding. Orleans went into default of that loan (whose maturity had been extended twice before), which precipitated the builder's Chapter 11 filing.

Obtaining another loan extension was critical to Orleans’ ongoing pursuit to find a buyer for the company. In a statement it released on Monday evening, Orleans said that it had presented its lenders with “a non-binding letter of intent relating to the sale of the Company,” two days before the banks decided against the loan extension.

Orleans did not reveal the name of the potential suitor, but said that it would continue to pursue a sale while under Chapter 11 protection.

Jeffrey Orleans, the builder’s chairman, president, and CEO, lamented that Chapter 11 was his company’s option of last resort. “We have done everything we could to generate cash flow and reduce operating expenses” in the face of a severe housing recession, he said.

That has included layoffs and more. From June 2006 to the present, the company had decreased its workforce by 69% to 300 employees. Between June 2006 and June 2009, it lowered the number of lots it controlled by 66%. During that same period, Orleans’ administrative expenses were cut in half. And from September 2006 through December 2009, it slashed spec inventory by three-quarters.

Ironically, Orleans is filing for bankruptcy protection at a time when its housing markets “have either stabilized or [have] slightly improved,” according to its CEO. Orleans’ residential revenue in fiscal 2009, at $322 million, was two-thirds lower than what it reported in fiscal 2006, at just less than $1 billion. However, in each of the last two quarters, Orleans' new net orders have increased by more than 40%, and its backlog “has been relatively stable.” The company also reported positive cash flow in eight of its last 12 quarters, during which it reduced its total bank debt by about 40%, from $513 million.

Orleans stated that its divisions would continue business “without interruption” while the company reorganizes under Chapter 11. Orleans builds and sells homes in Pennsylvania, New Jersey, New York, Virginia, North and South Carolina, Illinois, and Florida. The builder has reached agreement with certain lenders for up to $40 million in debtor-in-possession financing, pending court approval.

Its bankruptcy filing excludes certain subsidiaries, including Alambry Funding Inc., which is Orleans Homebuilders' mortgage brokerage services business.

John Caulfield is senior editor for BUILDER magazine.