Lennar Corporation (LEN) announced that it intends to issue senior notes worth $350 million due on December 15, 2017 to initial purchasers, who resold the 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 July 20, 2012.

Lennar intends to purchase its outstanding 5.95% senior notes due 2013 in the immediate future with a portion of the net proceeds from the sale of these senior notes. The rest of the net proceeds will be used for working capital and other corporate expenditures.

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 strategically focuses on acquiring higher margin well- positioned communities, in order to increase margins and sales orders.

However, Lennar Corporation’s cash and debt positions have deteriorated. Lennar had homebuilding cash and cash equivalents of $667.1 million as of May 31, 2012 compared with $1.02 billion as of November 30, 2011.

The average outstanding debt of the company was $3.5 billion for the six months ended May 31, 2012, versus $3.1 billion for the six months ended May 31, 2011. Net debt from homebuilding amounted to $2.80 billion as of May 31, 2012, reflecting a net debt-to-capitalization ratio of 46.9%.

Our Recommendation

Currently, we have a Neutral recommendation on Lennar Corporation. The company holds a Zacks #2 Rank (short-term Buy rating).

Overall, we are encouraged by the company’s impressive first half results and improved profitability. We believe Lennar is performing better than its peers by increasing the prices of its products, reducing incentives, improving volumes and investing in well positioned high margin communities. However, despite management’s optimism regarding improving home demand trends, we believe that the overall housing recovery will be slow and the company needs to focus on improving its cash position.

Based in Miami, Florida, Lennar Corporation is engaged in homebuilding and financial services in the US. Lennar offers multi level residential buildings, single-family attached and detached homes, communities and suburban communities, communities with golf course and more.

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