Orleans Homebuilders announced it has struck an agreement with its revolving credit line lender that should keep the company in operating cash for the time being.

Its credit line lenders have agreed to let the company keep borrowing from its $375 million credit line until about Jan. 29, when it hopes it will have a new credit agreement in place with significantly different structural and covenant changes.

“The company believes that the amendment … should provide the company with adequate liquidity to continue its operations in the near term, including potentially for up to the next 12 to 18 months,” it said in the announcement.

Approval of the amendment still isn’t a sure thing. Each of the approximately 16 lenders backing the credit line must vote in favor, Orleans reported. That needs to happen before Dec. 20, the date the credit line matures. If the amendment is not approved by that date, Orleans won’t have the money to repay debts or continue operations, it said.

"We appreciate the support of the bank group, and we look forward to approval of the temporary amendment and to finalizing the longer-term bank maturity extension,” said Jeffrey P. Orleans, president, CEO, and chairman of the Orleans’ board, in the announcement. “We are seeing some stabilization in the economy through improvement in year-over-year net orders, and we believe that we have the opportunity to successfully re-capitalize and reposition our company, or to complete other strategic alternatives that we are actively pursuing."

Solving the credit line problem is only a temporary stopgap. The company must refinance its debt, receive some infusion of capital, or be sold within a year or so after the credit amendment, or it will need to restructure the loan again or run out of cash.

Orleans has hired BMO Capital Markets and Lieutenant Island Partners as advisors for a potential sale or re-capitalization.

As part of the credit agreement, Orleans will be selling “significant” land assets in the year, the company announced. While some land will be kept to meet immediate demand, the sale “may include substantially all of the company’s undeveloped land positions as well as certain other positions.” It’s expected those sales will be at a “material” loss to the company.

In the meantime, Orleans hasn’t been making payments on its other loans. It skipped making a $639,000 payment due Sept. 30 on its $30 million 8.52% preferred securities and has received a default note because of it. Orleans announced that it doesn’t intend to make the Dec. 30 $639,000 payment either at least until it completes the credit amendment. Despite that, the bondholders  have not chosen to ask that the loan be paid back in full.

It also didn’t make the $235,000 payment due on its junior subordinated notes due Oct. 30, and its grace period expired Nov. 29. Those note holders have since requested and received the $5 million letter of credit issued to secure the loan.

On a more positive note, thanks to Congress’ extension of the net operating loss provision, Orleans is expecting an $18 million tax refund in early 2010.

Teresa Burney is a senior editor at BUILDER and BIG BUILDER magazines.

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