$350m ($52.5m) sen unsec cb coming tonight from JPM/Citi. Terms: 10yr, 2.5-3% up 37.5-42.5% put/call 5yr, full pctn. UOP=repay debt/gcp. Existing 2% ’20 (12/13 put call) came 2% up 37.5% now x/par up 45% (static 37d). 3.5y DHI ~31 iv (300 bps CDS) w/leaps 40 iv bid. LEN 3yr CDS ~355=25iv & 3/4.7 pts cheap (35/40 vol). 5yr CDS ~425 so we’ll use that (although there is basis vs str8). ADC 5.5m, no leap liq, 2yr 10/50 ile = 53/42 vol. In short, space trades cheap (tricky sctr w/alot of mkt won’t play CDS). We’ll use 32 for 5 yr. Theo = 105.5. Existing cb has worse strike (27 vs 21), x/par w/more premo but we prefer 3 vs 5. New Issue implied (mids) = 23 iv so slightly cheap to existing. So on that basis, we would LENd $ to co but would ask for mids or better
One of the nation’s largest homebuilders. They delivered 11,362 homes in the LTM at an average price of $245k.
PF Cash $983m
PF Debt $3857m
LTM EBITDA -$116m
LTM FCF $221m
Mkt cap $2771m
Lennar has been hit hard by the downturn, deliveries down 77% from peak in FY06. Have been aggressive at reducing costs, writing down assets, & reducing large JV debt. At current low sales levels, they have been able to generate small profit & +EBITDA in last 2 qtrs. Co has recently purchased 3 distressed portfolios for $310m ($185m cash), have had success, but liquidity reduced. Have $437m of debt maturities next 2 yrs.
Our assigned spread L+425