October 18, 2012 / 4:06 PM / 5 years ago

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

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.

     -- Industry Report Card: U.S. Homebuilders Pivot Toward Growth, Oct. 17, 
     -- 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

Complete ratings information is available to subscribers of RatingsDirect on 
the Global Credit Portal at www.globalcreditportal.com. All ratings affected 
by this rating action can be found on Standard & Poor's public Web site at 
www.standardandpoors.com. Use the Ratings search box located in the left 

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