The housing market's collapse hit Orleans Homebuilders Inc. particularly hard.
Between the peak of the boom in June 2006 and the depths of the downturn in mid-2009, the 92-year-old Bensalem firm, the region's oldest residential builder, saw annual revenue drop to $335 million, from $985 million.
Jeffrey P. Orleans, who inherited the publicly held company from his father, Marvin, and grandfather, Alfred P., navigated it profitably through the prolonged downturn of the 1990s. This time, he tried to avert bankruptcy, but recovery proved elusive.
Although Orleans filed for Chapter 11 protection Monday in Wilmington, the company had pulled out most of the stops in the months leading up to the declaration. It reduced net debt, cut the number of spec homes by 53 percent to the current 184, and lowered building-lot inventory 59 percent.
The Philadelphia region has not been rocked by the housing bust as hard as other parts of the country. But after the late 1990s, Orleans was not just a local builder - it expanded to what then were potentially lucrative markets.
Three of those markets - central Florida, Arizona and Illinois - have experienced the worst of the downturn, with foreclosure and delinquency rates among the highest in the country. In response, Orleans either pulled out or reduced its presence in 2007, selling off 1,316 of its building lots.
Overall, it cut staff by 70 percent, to 300 today from 990 in 2006.
"We achieved good progress on our key objectives for liquidity/cash flow, capital structure, balance sheet/portfolio review and cost structure," Jeffrey Orleans wrote in a news release about the bankruptcy filing.
Home sales had started to pick up in the last six months of 2009. "The housing market appears to have either stabilized or slightly improved, albeit at historically low levels," Orleans said.
In the last half of the year, the company delivered 356 homes to buyers in eight states, resulting in $132.7 million in revenue; 369 contracts, valued at $134.5 million, were signed.
But the market's recovery has been irregular, with sales of new homes and competing previously owned homes tough to predict, though they are better than they were a year ago.
"Some analysts have models; others are essentially taking a shot in the dark," said Mark Zandi, chief economist at Moody's Economy.com. "Underlying sales are soft, but not as soft as the January data suggests. March-May will be measurably stronger."
Though Orleans' cost-cutting reduced net debt to $407.4 million from $583.9 million, it was not enough.
The company and its 17 lenders failed to agree on extending the credit facility - about $311 million in cash borrowings, excluding letters of credit, past Feb. 12. Orleans had negotiated to sell the company, but when the credit-facility extension failed, the sale could not be finalized.
Now, the company is seeking bankruptcy-court permission to continue warranty and incentive programs, sales and use taxes, employee wages, and other payments necessary to keep it operating. It said it believed all customer deposits were being kept in segregated escrow accounts and would not be affected by the bankruptcy filing.
Orleans also is seeking the court's permission to use $40 million in debtor-in-possession financing, arranged with the current lenders.
Information on the bankruptcy is available at www.orleanshomesreorg.com. For the next few days, a call center will be open from 8 a.m. to 6 p.m. at 888-215-9315.
Though Orleans suspended some operations in the two weeks before the filing, the company says it plans to proceed with closings that had were delayed and continue building in all communities.
Orleans is the second local home builder to file for Chapter 11 protection in the last year. In April, TH Properties of Harleysville filed and has since made several attempts to reorganize and complete some houses.
Unlike Orleans' bankruptcy, which came after months of well-publicized efforts to reach accommodation with lenders, TH Properties' filing surprised buyers and vendors and shut down operations.
TH Properties' efforts to secure financing to complete houses have met with objections from its secured creditors. Yesterday, Bank of America objected to a Feb. 16 motion to use its cash collateral, arguing it would receive less than the value of its secured claims from the sale proceeds "from certain houses that are not even under contract."
Orleans has filed a motion to honor pre-petition claims "for certain critical vendors."
If vendors aren't paid, as was the case with TH Properties, many of the builder's buyers could end up with mechanics' liens on their houses.
Buyers concerned about this possibility "should purchase a mechanics' lien endorsement for their title policy and get a credit for the premium from the seller," said bankruptcy lawyer William D. Schroeder Jr. of Colmar.