Thornburg Mortgage said today via a statement on its website that it faces another $270 million in margin calls after revealing that it paid out more than $300 million in similar actions since mid-February.
“The turmoil in the mortgage financing market that began last summer continues to be exacerbated by the mark-to-market accounting rules which are forcing companies to take unrealized write-downs on assets they have no intention of selling,” said Larry Goldstone, president and chief executive officer of Thornburg Mortgage, in a statement.
“In this environment, the current market price of assets has become disconnected from their underlying recoverable value, resulting in increased volatility and imprecise quarter-to-quarter comparisons of asset valuations.”
The Santa-Fe, New Mexico-based mortgage lender said that as of February 27, it had met all margin calls, including those from February 14th on, but as a result, suffered greatly in the liquidity department.
Thornburg gave no assurance that it would be able to raise capital given the current market environment, and noted that failure to meet outstanding margin calls could lead to default and the liquidation of pledged securities.
The company disclosed that it’s currently in default with one reverse repurchase agreement counterparty and is “working” to repay the debt, though that lender hasn’t yet exercised its right to liquidate collateral.
“Although this is a difficult time for the company, we are working diligently to satisfy all of our lenders as soon as possible and return to financial stability,” said Goldstone.
“These difficult market conditions have also created increased profit opportunities as lower-priced mortgage assets will translate into wider mortgage spreads and improved portfolio margins going forward. We remain committed to manage through these challenging and volatile markets and remain focused on building long-term value for shareholders.”
Unfortunately, shares of Thornburg tanked on the news, falling $4.93, or 55.39%, to $3.97 in midday trading on Wall Street.
The fear is that the deteriorating value of mortgage securities due to oversupply could force Thornburg to meet more margin calls, adversely affecting its ability to continue doing business.
Citi downgraded Thornburg to sell from hold, and cut its target price to $5 from $12.
Update: Thornburg announced the completion of a mortgage debt transaction collateralized by $992 million of the company’s prime adjustable-rate mortgage loans, with the proceeds used to reduce the company’s borrowings and enhance liquidity.