Lennar announced plans April 26 to market $500 million worth of senior notes, using at least $200 million of the proceeds to pay off debt coming due in the next few years.
The move was not unexpected. Other public home builders have been tapping the debt markets in the past year to buy back old debt, sometimes at a discount, in order to push back due dates. Often the new debt carries higher interest rates than the older bonds.
Lennar said it plans two separate offerings--the first $250 million in senior notes due in 2018 and the second $250 million in convertible senior notes due in 2020. The initial buyers of the convertible notes, institutional buyers only, are expected to have the option to buy up to $37.5 million more as well. The notes will convert to Class A common stock over time. The 2018 notes may be offered to foreign buyers as well as domestic.
Roughly $200 million of the proceeds from the sale of the 2018 senior notes is expected to be used to buy back $200 million of its existing senior notes that are due this year, 2011, and 2013.
The company said it will buy back the notes starting with the $244 million of 2011 notes, which carry the higher interest rate of 5.95%; then the $350 million of 2013 notes, which have the same interest rate; and ending with the $176 million of 2010 notes, which have the lowest interest rate of 5.125%.
The rest of the proceeds from the sale of both batches of new notes would be used for "general corporate purposes" that could include repaying or rebuying other senior notes or other debt, the company reported.
The tender will be structured as a "waterfall" in which it moves on a prorated basis from highest priority down to lowest while remaining within its aggregate principal amount. The order of priority is first $244 million in 5.95% Senior Notes due 2011; $350 million in 5.95% notes due 2013; then $176 million in 5.125% notes due 2010. Lennar will pay $1,047.50, $1,030 and $1,015 per thousand face value respectively.The tender offer will expire at 5:00 p.m., New York City time, on May 24.Dealer managers are Citigroup Global Markets Inc. and J.P. Morgan Securities Inc.