Lennar the latest to ditch revolver
Tuesday, 23 February 2010

By Matthew Quinn

Lennar announced on Monday that it had terminated its $1.1 billion revolving credit facility, joining other major homebuilders that elected to do the same during the housing downturn.

The credit facility had no outstanding borrowings and was only currently being used to issue letters of credit, the company said in a regulatory filing. Lennar said it determined it would be more cost effective to enter into cash-collateralized letter of credit agreements. It plans to collateralize $164 million in letters of credit outstanding with a new $225 million agreement it has with two banks.

Lennar expects to save over $8 million annually as a result of terminating the credit facility and entering into the new credit agreement.

Additionally, the move frees Lennar from restrictions that made its former bank line inconvenient to maintain, observed Gimme Credit analyst Vicki Bryan in a research note. For example, Lennar had been effectively restricted from using $750 million in cash, which was included in the calculation of the borrowing base.

But now, "with $1.3 billion in cash on hand and another $320 million expected soon from a tax refund, Lennar has plenty of cash," Bryan wrote. "We expect Lennar to be prudent with its cash going forward, however."

Bryan also noted that the move leaves Pulte Homes and Toll Brothers as the only major builders with significant bank lines.

D.R. Horton terminated its $1.65 billion revolving credit facility in May. Ryland closed its $200 million credit facility in June. It was also using the facility to issue letters of credit.

In December, Pulte Homes amended its credit facility after failing to comply with the tangible net worth covenant as of Sept. 30. Under the new agreement the facility's size was cut to $750 million from $1 billion.

At the end of 2009, Toll Brothers had approximately $1.38 billion available under its revolving credit facility.

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