Orleans Homebuilders in violation of debt service ratio covenant on revolver

By Caroline Salls

Pittsburgh, Feb. 2 - Orleans Homebuilders, Inc. found it is in violation of a financial covenant under its revolving loan credit agreement that required the company to maintain a specific debt service ratio, according to an 8-K filing with the Securities and Exchange Commission.

Unless waived or otherwise cured, the covenant violation constitutes an event of default under the revolver.

The company said it is currently in discussions with its lenders regarding the violation, with a view toward amending the calculation of the debt service ratio to add inventory impairment and abandoned project charges, as well as other non-cash charges, back to adjusted EBITDA.

If Orleans in unable to amend the facility, it said the violation could have a material adverse affect on its financial position.

The company discovered the covenant violation while preparing its 10-Q for the second quarter of fiscal year 2007.

Orleans said the debt service ratio is the ratio of the company's adjusted EBITDA to debt service.

Specifically, as of Dec. 31, the company's debt service ratio was 1.61 to 1.00, while the facility required a debt service ratio of 2.00 to 1.00.

As of Feb. 1, there was $501.95 million in borrowings and $40.72 million in letters of credit outstanding under the facility.

Orleans Homebuilders is a Bensalem, Pa.-based developer, builder and marketer of single-family homes, town homes and condominiums.

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