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Lennar Issues Senior Notes Again

Zacks Equity Research

Lennar Corporation (LEN) announced that it intends to issue senior notes worth $350 million due on November 15, 2022 to initial purchasers, who resold senior notes to qualified institutional buyers. The senior notes, which carry an interest rate of 4.75% are expected to be delivered and paid for on October 23, 2012. 

Lennar intends to use the net proceeds for working capital and other corporate expenditures, which may include repurchase or repayment of  its other outstanding Senior Notes or any other debt.

Most of the company’s short-term financing, such as expenses for land acquisition and development activities and other general operating needs are met with cash generated from operations and proceeds from debt issuances.

Lennar Corporation’s debt position has deteriorated recently. Homebuilding debt amounted to $3.67 billion as of August 31, 2012 versus $3.47 billion as of May 31, 2012, reflecting a net debt-to-capitalization ratio of 47.7%. Lennar had cash and cash equivalents of $692.0 million from homebuilding as of August 31, 2012, compared with $667.1 million as of May 31, 2012.

Our Recommendation 

Currently, we have a Neutral recommendation on Lennar Corporation, a peer of KB Home (KBH). The company holds a Zacks #2 Rank (short-term ‘Buy’ rating).

Lennar has witnessed solid year-over-year growth for new home orders, average selling prices and home closings in all the three quarters of 2012. Margins have also been above average, despite rising costs, driven by strong operating leverage. Lennar also appears to be well positioned for growth in the rest of the fiscal year. We believe that the company is performing better than its peers by increasing sales prices, reducing incentives, improving volumes and by making opportunistic land acquisitions. However, we would like to remain on the sidelines until we see a broad-based housing recovery, which is currently concentrated in high-end communities.


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