Facing a default on its $585.0 million credit facility, management at Orleans Homebuilders secured a critical extension on an existing waiver late yesterday afternoon. The original waiver, which gave the company a break from certain financial covenants, was set to expire yesterday. The new extension has a lifespan than runs through Sept. 29.

The waiver extension gives management at the struggling company some breathing room while it tries to negotiate an amendment to its revolving credit facility. Management sounded an optimistic note in a press release, stating that it anticipated an agreement with lenders would be reached before the extended waiver period concluded.

The company also is expected to file its annual 10-K with the Securities and Exchange Commission by Sept. 29.

Orleans secured the original waiver on May 9 after a $43.5 million deferred tax charge during its fiscal third quarter, ending March 31, triggered defaults on tangible net worth, maximum leverage, and land-to-net-worth covenants attached to the revolver.

Without an amendment, a default on the revolver is imminent. In turn, the default could affect the company's capacity to service its other debt, including its ability to make payments on $75 million in trust preferred securities. The interest rate on the securities is poised to jump as much as 300 basis points from 8.61%, as an August 2007 deal to defer the start of a punitive rate increase runs out. The new rates are expected to kick in at the end of October.

The company's ability to meet the additional debt obligations is in question as the company remains on shaky financial footing.

According to the company's most recently filed 10-Q, the company was sitting on $39.1 million cash and $511.9 million in debt at the end of March. In addition, the company's borrowing capacity will shrink significantly as roughly $121.0 million of its revolver matures on Dec. 20.

Moreover, sales were down roughly 40% in both unit volume and dollar value during the quarter thanks to a combination of fewer active communities and deteriorating conditions in once stronger markets such as Charlotte, Richmond, and Raleigh.