Orleans Homebuilders plans to be out of bankruptcy reorganization before year-end 2010, the company reported Wednesday.

A bankruptcy court judge has signed off on Orleans' disclosure plan, sending its reorganization plan off to creditors for a vote. A hearing for the court's approval of the plan is set for Nov. 16. If approved, the company would emerge with less than $200 million in debt, down from more than $500 million at the time of the filing on March 1.

Orleans has the approval of its main creditors, including the unsecured creditors' committee, boosting executives' confidence that the approval process will go smoothly.

"All the parties have worked closely and collaboratively, and we are very pleased to present a consensual plan of reorganization for creditor consideration," Mitchell B. Arden, who has been serving as Orleans' chief restructuring officer, said in a statement. Arden is senior managing director and shareholder of Phoenix Management, the turnaround specialist hired by the company to handle the restructuring.

When Orleans filed for bankruptcy court protection from creditors under Chapter 11, its original plan was to auction off the company's assets, effectively closing the 90-year-old company. NVR was the "stalking-horse bidder" for the Bensalem, Pa.-based builder's holdings, setting a starting bid of $170 million for 4,300 lots in 11 divisions in eight states. However, those plans changed rapidly in May when Orleans' senior-debt holders decided to reconstitute rather than dissolve the company, offering to support keeping the company alive.

NVR, unhappy with that decision, has sued in bankruptcy court, filing an adversarial claim and asking for damages. That suit is pending.

Under the proposed Orleans reorganization plan now under review by creditors, all the company's administrative costs, debtor-in-possession financing, taxes, priority claims, including secured operational liens, would be paid in full. Holders of "certain" secured pre- and post- petition claims would receive a pro-rata share of common stock in the reorganized company, new notes, and cash, depending on their relative priorities. All stock, including common stock, as well as junior notes and trust-preferred securities would be canceled.

However, there are provisions in the plan that would sweeten the outcome for some unsecured creditors if they vote in favor of it.

Under the proposed plan, holders of general unsecured claims, junior subordinated notes, and trust-preferred securities as well as convenience-class creditors, who will be allowed to vote on the plan, would split on a pro-rata basis a $6 million cash pool as well as the proceeds of any potential avoidance claims. The company estimates that will amount to between 3% and 5% of what they are owed.

In addition, the secured claim holders who aren't getting all of what they are owed back would waive their rights to collect the difference, cutting out unsecured creditors. If the unsecured claim holders vote to reject the plan, the secured creditors won't waive those rights. That could result in the unsecured creditors getting less in the end, the company said in its announcements.

"Both the company and the unsecured creditors' committee believe that under this scenario, recovery for Class 3 (unsecured) would be less than if Class 3 voted to accept the plan, and that any distributions would not take place as soon," the company said in its announcement. 

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

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