NVR to emerge from bankruptcy by end of month, pay off debt Builder to issue junk bonds, stock


NVR L.P., the parent of NVHomes and Ryan Homes, said yesterday that it would emerge from the protection of bankruptcy court Sept. 30, issuing $160 million in junk bonds to pay off its bank creditors and issuing most of its stock to former bondholders.

"The perspective of the company is that it had a financial problem and not an operating problem," said Douglas Poretz, a outside spokesman retained by McLean-based NVR.

NVR is the second-biggest home builder in the Baltimore metropolitan area and the top builder in the combined Washington-Baltimore region.

The company was forced into Chapter 11 bankruptcy protection by the combination of the leveraged takeover of Ryan Homes by NVHomes and the real estate recession.

The company's finances depended on increases in housing prices, and when housing prices began stagnating in 1989, so did NVR's earnings.

When sales volume turned down by 1990, NVR began losing money heavily, including $172 million in the third quarter of 1990.

The company also was forced to give up control to its lenders of most of its land on which it had planned to build homes.

Mr. Poretz said Bear, Stearns & Co. Inc. will sell $160 million in 11 percent senior notes due in 2003. Proceeds from the notes, which were rated below investment grade by both Standard & Poor's Corp. and Moody's Investor Service, will pay the $150 million NVR owes its banks and leave the company with $10 million for business purposes, he said.

"It certainly isn't [a] Grade A" bond rating, Mr. Poretz said. But he insisted the company will not have trouble generating the earnings to service the debt. He said low inflation, low interest rates and an improving Washington-area economy will keep the company's operation stable.

The owners of about $215 million in bonds that NVR used to finance its Ryan takeover will not be repaid in cash. Instead, they will get 91 percent of the 17 million shares of common stock NVR will issue as part of the reorganization.

Holders of the company's existing partnership units will get only 6 percent of the reorganized company. The remaining share goes to preferred unitholders and others.

The company will also be turning itself into a corporation from a limited partnership, Mr. Poretz said. The bondholders sought that change because institutional investors suffer adverse tax consequences if they own limited partnership interests.

Company Chairman and Chief Executive Dwight C. Schar, who founded the company, will stay on after the reorganization is complete, Mr. Poretz said.

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