TEXT-S&P rates Lennar Corp proposed notes 'B+'

Oct 18 - Standard & Poor's Ratings Services today assigned its 'B+'
issue-level rating and '4' recovery rating to Lennar Corp.'s proposed
offering of $350 million of senior notes due 2022. Our '4' recovery rating
indicates our expectation for an average (30%-50%) recovery in the event of
default.

Lennar plans to use proceeds from the offering for working capital and general
corporate purposes, which may include acquisitions or debt repurchases. From
our perspective, the offering will bolster the company's cash balances, which
totaled roughly $845 million at Aug. 31, 2012. This balance provides
sufficient capital to fund land investment needed to support the meaningful
revenue growth that we expect over the next two years. The new notes will rank
equally with Lennar's other senior unsecured obligations and will be
guaranteed by substantially all of Lennar's homebuilding subsidiaries for as
long as these subsidiaries guarantee at least $75 million of parent company
obligations. The guarantees can be released under certain circumstances.

Our ratings on Miami-based Lennar reflect our expectation that higher
sustained revenue growth and improved profitability over the next 12 to 18
months could result in substantial improvement in Lennar's EBITDA-based credit
measures. In our view, proceeds from the proposed note offering, along with
availability under a $525 million unsecured revolving credit facility executed
in May 2012 ($500 million of which is currently committed) should enable
Lennar to readily finance near term growth. Given our expectations for
community count growth of roughly 20% over the next 18 months and the
continuation of higher absorption trends (which totaled 3.2 homes per month
during the third quarter of 2012), we believe Lennar could potentially
increase revenues by 25% in fiscal 2013. We also believe Lennar's operating
margin, which totaled 11.2% for the third quarter of 2012 (among the highest
of its peers), will continue to strengthen modestly over our forecast period
as Lennar continues to drive more sales from newer, more profitable
communities and leverage its operating platform.

Under our base-line scenario, we expect adjusted debt-to-EBITDA to approach
the high-6x area by the end of 2013, down substantially from 10x at Aug. 31,
2012. This scenario also assumes that funded debt (including recourse debt at
Rialto) does not change materially from $4 billion at Aug. 31, 2012, pro forma
for the proposed note offering. The substantial reversal of Lennar's deferred
tax asset allowance (DTA) over the past two quarters improves balance sheet
metrics such as debt-to-total book capitalization, but perhaps more
importantly, provides additional support for our expectation that Lennar is
likely to post consistent net operating profits over the next two years.

Our positive outlook acknowledges our expectation that Lennar's EBITDA-based
credit metrics will improve materially over the next 12 to 18 months. We could
raise our corporate credit rating to 'BB-' if we think Lennar will continue to
post revenue gains in the high 20% area through 2013, while modestly expanding
adjusted EBITDA margins to about 11%. Under this scenario, we would expect
debt-to-EBITDA to decline to the high-6x area by year-end 2013. However, we
could revise the outlook back to stable if sales growth is more moderate than
we currently expect and key EBITDA-based credit metrics do not improve to
levels more commensurate with similarly rated industrial peers by the end of
2013. We would also lower the rating if liquidity weakens significantly in the
absence of a sustainable recovery.

RELATED CRITERIA AND RESEARCH
-- Industry Report Card: U.S. Homebuilders Pivot Toward Growth, Oct. 17,
2012
-- Issuer Ranking: U.S. Homebuilders, Strongest To Weakest, Oct. 12, 2012
-- Industry Economic And Ratings Outlook: U.S. Home Buyers Return, But
Can Builders Deliver?, July 20, 2012.
-- Key Credit Factors: Global Criteria For Single-Family Homebuilders,
Sept. 27, 2011
-- Use Of CreditWatch And Outlooks, Sept. 14, 2009

Ratings List
Lennar Corp.
Corporate credit rating B+/Positive/--

New Rating
Lennar Corp.
$350 mil sr nts due 2022 B+
Recovery rating 4

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