NVR L.P., the region's largest home builder, said yesterday it has a preliminary agreement with its principal creditors to surrender control of the company and to continue operating under federal bankruptcy court protection.
Representatives of NVR's bondholders, who would receive 80 percent of NVR's stock, said they supported the filing under Chapter 11 of the federal bankruptcy code because their interests would be protected while enabling the company to stay in business. The filing is scheduled to be made today in federal bankruptcy court in Alexandria.
"We looked at a number of different alternatives, but this is the one with all the circumstances that we have to work with -- with the bondholders, with our banks, with the market ...," NVR Chairman Dwight C. Schar said yesterday in an interview at corporate headquarters in McLean. "We felt that this was our best alternative."
The filing will not affect NVR's financial services, including NVR Savings Bank, which has four branches in the Washington area.
Under Chapter 11 of the federal bankruptcy code, a company is protected from claims by creditors while it attempts to reorganize its finances under a court-approved plan.
NVR, a publicly traded limited partnership that owns Ryan Homes and NVHomes, sold nearly 4,000 houses last year, mostly in the Baltimore-Washington area.
Schar, who founded the company, undertook a voracious expansion in the 1980s that transformed NVR into the dominant builder in the Washington area and gave it operations in other parts of the country.
The company's growth ended two years ago when debt-laden NVR crashed in the real estate slump. In 1991, the company lost $36.7 million and had revenue of $818.9 million. In 1990, NVR lost $260 million and had revenue of $1.1 billion.
Despite its difficulties, NVR is the nation's eighth-largest builder.
Since the real estate market's downturn, NVR has been negotiating with a consortium of eight banks, which provided it with the cash to buy supplies and build homes, and with holders of $205 million in bonds NVR issued to purchase Ryan Homes in 1987.
NVR said that with its principal bondholders' consent, it would ask the bankruptcy court today to approve its arrangements to get new financing and to pay suppliers, honor warranties and continue building and selling homes. Even though control of NVR likely will shift to the bondholders, Schar said he expects to continue as chairman.
NVR executives devised an elaborate communications process to inform those who do business with NVR. Sales representatives today will begin telephoning buyers who recently signed contracts to buy NVR Homes.
Company officials said they hoped to propose a long-term reorganization plan to the bankruptcy court by the end of July and emerge from bankruptcy protection within six months.
In the meantime, vowed Schar, "it will be business as usual."
But there are several wild cards. Housing analysts said it is difficult to operate a home-building firm while reorganizing under Chapter 11 constraints because skittish buyers are reluctant to entrust thousands of dollars to a company in which survival is not assured.
Those difficulties were acknowledged yesterday by Schar.
"We haven't been able to look at the home building industry as role models for getting this done, but there have been other industries," he said. Schar said NVR is taking its cue from companies outside the home-building industry that have sought refuge in bankruptcy court with the prior approval of major creditors, including retailer R.H. Macy & Co., which filed for protection from its creditors in January.
NVR's suppliers are expected to be less of a problem during reorganization. Throughout its financial difficulties, the company has paid suppliers promptly so relatively little money is owed, NVR executives and suppliers said.
But as NVR's problems mounted, it was running short of money needed to stay in business. A major difficulty is NVR's long-term financing. Warren Gorrell Jr., an attorney at the Washington-based law firm Hogan and Hartson, which is handling the bankruptcy court filing, said yesterday that two of NVR's banks -- Pittsburgh National Bank and Citibank -- agreed to provide the home builder with $100 million in new financing. The financing will provide $80 million to a mortgage banking subsidiary, NVR Mortgage Finance, and $20 million to NVR's home-building operations.
NVR's negotiations with its banks have been long and arduous, sources said. The banks in the consortium once supplied NVR with lines of credit of up to $260 million. In recent months, however, credit lines have fallen to about $120 million.
The consortium refused to renew credit lines after March 31, effectively cutting off NVR from the funds needed to build houses, Gorrell said.
The talks with the consortium and bondholders, which have lasted two years, recently were marred by infighting among the banks, sources said. American Security Bank, whose parent is financially troubled MNC Financial Inc., was eager to sell its position but could not receive approval from the other banks, one source said.
Joseph P. Berghold, NVR's chief financial officer, whom sources said had been handling the negotiations with the banks, has resigned from NVR. Schar said a new chief financial officer, whom he declined to name, will be announced soon.
In contrast to the bank negotiations, talks with NVR's bondholders were relatively smooth, sources said.
Under the terms of the deal, which must be approved by half the bondholders, the bondholders' group would receive five seats on a nine-member board of directors, made up of a new corporate general partners, created to guide NVR. Eighty percent of NVR's stock would go to the bondholders, 12 percent to preferred unit holders, other creditors and management and 8 percent to stock holders.