NVR L.P., one of the top two homebuilders in metropolitan Baltimore, announced yesterday that it will not make approximately $14 million in interest payments due today on its "junk" bonds.
The McLean, Va.-based company, which builds housing locally under the names NV Homes and Ryan Homes, said in a statement that it does not expect to pay any further interest on its $220 million worth of junk bonds until a financial restructuring plan announced earlier is completed.
Junk bonds, high-yield debt instruments, have fallen out of investor favor after being used by many companies to raise capital during the 1980s.
"Although we expect significant progress to be made right away, we think it won't be until the second, maybe the third, and possibly even the fourth quarter of 1991 untilwe complete our discussions,"NVR spokesman Doug Poretzsaid.
Asked whether the failure to meet the interest payments means that NVR is in financial trouble, Mr. Poretz said: "I wouldn't want to characterize it as that. I think it means we're in the real estate business in 1990."
NVR, the eighth-largest homebuilder in the country and theleading homebuilder in metropolitan Washington, has been floundering financially in the sluggish economy.
On Nov. 21, the company announced a third-quarter loss of $172.3 million, compared with net income of $9.6 million in the third quarter of 1989.
In connection with the announcement of its loss, NVR also said that it was undergoing an operational restructuring in which it would stop buying land and embarking on new development projects, centralize management of its homebuilding operations, close two plants making building products and withdraw from several markets where it once was active.
NVR also said in November that it appeared the interest payments on the junk bonds, which were sold in June 1987, were "very unlikely." Because of that, the company said, it will begin a financial restructuring that will include discussions with bondholders.
Under the terms of the bond indenture, bondholders have the right to demand that NVR accelerate its repayment of the bonds if it fails to make an interest payment. The indenture also provides that NVR's bank debt must be paid off before accelerated bond repayment can begin.