Orleans secures credit agreement covenant breach waiver, finalizing amendment documents

By Caroline Salls

Pittsburgh, Jan. 30 - Orleans Homebuilders, Inc. has received a limited covenant waiver from the lenders under its second amended and restated revolving credit line agreement, according to an 8-K filed Friday with the Securities and Exchange Commission.

Wachovia Bank, NA is the administrative agent for the credit line.

Specifically, the lenders have agreed to waive a breach of a covenant related to the company's outstanding borrowings exceeding its available borrowing base through Feb. 6. As of Jan. 16, the unpaid principal balance of the outstanding loans under the credit agreement exceeded the borrowing base availability by $14.6 million.

Under the credit agreement, the company was required to make a principal repayment by Jan. 23 in an amount necessary to reduce the outstanding principal balance of the loans to the borrowing base availability.

The company has not made the repayment in full, according to the 8-K, triggering an event of default on the credit agreement. Between Jan. 17 and Jan. 29, Orleans said it has made $7.2 million in principal repayments.

In addition, Wachovia asserted that the company breached the liquidity covenant in the credit agreement for the quarter ended Dec. 31, which would constitute an additional event of default.

The company said it disagrees with Wachovia's assertion that it has breached the liquidity covenant.

According to the 8-K, Orleans has been in talks with the lenders regarding an amendment to the credit facility, and some of the lenders have agreed in principle to amendment terms that would increase the company's ability to borrow under the credit facility and will modify some covenants through maturity.

"The current homebuilding environment is a challenging one; however, we are managing through it," chief executive officer Jeffrey P. Orleans said in the filing.

"Thanks to the support of our lender group, we obtained this limited waiver and are in the process of completing an amendment which will assist us in managing our business appropriately."

The company said it currently expects to complete formal documentation for the amendment before the expiration of the waiver period.

Additionally, the company may not request additional loans, letters of credit or tri-party agreements during the waiver period, and Orleans will not be obligated to pay default interest on the amount required to be repaid under a repayment covenant.

As of Jan. 26, $362.5 million of borrowings and $24.4 million of letters of credit and other assurances were outstanding under the credit agreement.

Orleans Homebuilders is a Bensalem, Pa.-based residential homebuilder.

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