The Oregonian is reporting Oregon’s Legend Homes can’t pay its bills.

Legend Homes Corp., one of Oregon’s oldest and biggest homebuilders, has survived three recessions with a reputation for paying subcontractors on schedule on the 10th day of each month.

But Tualatin-based Legend last month stopped paying about 60 subcontractors after its biggest lender, KeyBank, cut off funding. Legend’s outstanding bills total less than $1 million, President Jim Chapman said.

Legend has retained a turnaround specialist and now finds itself having to downplay worries about a potential bankruptcy.

“We’re not in danger of bankruptcy,” said David Oringdulph, Legend Homes’ chief executive officer. “What we are doing is reorganizing for a smaller market for the next year.”

In general, builders say slower than expected home sales have forced them to ask banks for more time to pay back construction loans. Local banks, they say, have been willing to renegotiate.

But builders say Cleveland-based KeyBank has been reluctant to restructure loans to allow them more time. Earlier this year, KeyBank filed a default notice on a Bend subdivision built by Renaissance Homes of Lake Oswego.

With economists predicting even deeper price declines, Chapman said he’s had a tough time finding another lender willing to take over KeyBank’s loan. Renaissance, though, has since raised enough from investors to pay off the debt, President Randy Sebastian said.

“KeyBank has not been willing to renegotiate,” Chapman said. “They’re playing hardball.”

With KeyBank, Legend took out three credit lines to pay for new home construction in three Washington County subdivisions, two in Hillsboro and one in Tigard.

The Hillsboro projects are done and the 349-lot Tigard subdivision is under construction, Chapman said.

In January, KeyBank capped all three credit lines and forced Legend to use all sales revenues from those projects to pay off the credit line balances, Chapman said.

Legend continued construction on six subdivisions, using sales revenues generated elsewhere to pay subcontractors. But by May, KeyBank’s requirements ate so far into the company’s cash flow that it halted construction companywide, Chapman said.

“We’ve had lines of credit with KeyBank for 17 years,” Oringdulph said. “It’s a big squeeze from our best lender.”

Asked if the company will have to file bankruptcy, Chapman said: “I would certainly hope not. I’m kind of waiting for our experts to show us the plan. Looking at our books from my point of view, we have a viable operation.”

Banks Pull Plug On Financing

Banks are finally pulling the plug on financing. Expect to see more of this. When it happens more homebuilders will go under. It happens the same way in every cycle. Builders build until they go bust.

Mike “Mish” Shedlock
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