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One of my readers just asked me why analysts are not recognizing Lennar's off balance sheet liabilities. I told him that sell side analysts really don't have any skin in the game. They really don't lose any money from being wrong - but there are parties that do... 

See Lennar, Voodoo and Zombies fully consolidated and Lennar Insolvent: Enron redux??? , then read the recently released 8K excerpt  below...

Creation of a Direct Financial Obligation or an Obligation under an Off-Balance Sheet Arrangement of a Registrant.

On January 23, 2008, the Company amended its senior unsecured revolving credit facility (the “Credit Facility”) to modify certain covenants, which included minimum tangible net worth, borrowing base and maximum leverage ratio, as well as to add a new covenant to reduce the recourse indebtedness of joint ventures in which the Company participates. Under this amendment, the maximum amount the Company can borrow was reduced from $3.1 billion to $1.5 billion.

The foregoing summary is qualified in its entirety by reference to the Credit Agreement dated July 21, 2006, the First Amendment to Credit Agreement dated as of August 21, 2007 and the Second Amendment to Credit Agreement dated as of January 23, 2008, which govern the Credit Facility. The Credit Agreement, the First Amendment to Credit Agreement and the Second Amendment to Credit Agreement are filed as exhibits to this Current Report on Form 8-K and are incorporated herein by reference.



The banks are starting to tighten up and put some real risk management measures into place. Athought it appears that they have cut Lennar some additional slack, they have reduced their exposure (and Lennar's overall availability to credit) by over 50%. They also have taken the off balance sheet structures and JVs very seriously this time around. For those that want to see the entire document, doc lennar_credit_amendment.

Despite this, and signficent valuation writedowns, there are analysts who are making positive comments based on ephemeral factors such as rate cuts and government stimulus packages. Despite the sell side stating (for the umpteenth time) that the worst is over, a historical perspective of the macro situation shows evidence to the contrary - and the management of the companies themselves say there is no relief in sight. 

 I told you I would be using this chart often.