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Wednesday, July 23, 2008

Thornburg Mortgage Begins Stock Exchange Offer


Associated Press
       SANTA FE — Mortgage lender Thornburg Mortgage Inc. on Wednesday began an exchange offer for four classes of its preferred stock, as part of its efforts to remain in business.
    Preferred stock holders will receive $5 in cash and 3.5 shares of common stock for each share of preferred stock tendered by 10 a.m. EDT on Aug. 20. Based on Tuesday's closing price of 29 cents, shareholders would receive about $6.02 per preferred share.
    The exchange offer is being completed as part of a recapitalization deal Thornburg announced at the end of March to raise $1.35 billion in new capital through an investment by MatlinPatterson. Thornburg needs to have at least two-thirds of each of four classes of preferred stock tendered for exchange to meet the requirements of the exchange offer.
    If the offer is successfully completed, the interest rate on the senior subordinated secured notes issued to MatlinPatterson will decline to 12 percent from 18 percent, saving the company about $69 million per year.
    Thornburg — which specializes in originating and investing in jumbo mortgages that are worth more than $417,000 — has been struggling since the middle of 2007 amid the downturn in the real estate market and a spike in mortgage defaults.
    In early March, Thornburg disclosed it had faced nearly $1.8 billion in margin calls since the beginning of the year. Thornburg faced a similar round of margin calls in August but was able to meet them.
    As delinquencies and defaults among certain types of mortgages have risen, investors have shied away from purchasing nearly all types of loans in the secondary market.
    The thin market for debt backed by mortgages has caused prices to plummet. As those prices fell, companies like Thornburg have been forced to reduce the value of their holdings, regardless of actual performance. Those declining prices also have banks making margin calls — which require companies to put up more collateral for financing lines of credit.
    Shares of Thornburg rose 4 cents, or 15 percent, to 33 cents in morning trading.

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