Thornburg on Verge of Bankruptcy after Chase Exercises Default Rights

March 5, 2008 No Comments »

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Jumbo loan lender Thornburg Mortgage disclosed late Wednesday that after failing to meet a $28 million margin call, JP Morgan Chase exercised its default rights under the agreement.

Chase had previously lent Thornburg $320 million, and its inability to meet the requirements associated with that deal led to more defaults under all of the company’s other reverse purchase agreements and secured loan agreements.

Bad news. And if the Santa Fe, New Mexico-based mortgage lender is unable to sell assets or raise enough capital to meet the margin calls, it could face bankruptcy.

Here is the full text from the form 8-K filing released by the company earlier today:

“Thornburg Mortgage, Inc. (the “Company”) has entered into reverse repurchase agreements, a form of collateralized short-term borrowing, with various counterparties.

The Company received a letter from JPMorgan Chase Bank, N.A. (“JPMorgan”), dated February 28, 2008, after failing to meet a margin call of approximately $28 million. The letter states that an Event of Default as defined under that certain Master Repurchase Agreement, dated as of August 3, 2006, as amended on February 7, 2007 by and between the Company and JPMorgan (the “Agreement”) exists.

The letter also notified the Company that JPMorgan will exercise its rights under the Agreement. The aggregate amount of proceeds lent to the Company under the Agreement was approximately $320 million.

The Company’s receipt of the notice of an event of default has triggered cross-defaults under all of the Company’s other reverse repurchase agreements and its secured loan agreements. The Company’s obligations under those agreements are material.”

Since mid-February, Thornburg has faced nearly $600 million in margin calls after UBS revealed $26.6 billion in Alt-A securities, leading to the price deterioration for such securities.

On Monday, the company announced that it had raised roughly $1 billion in collateralized mortgage debt to improve liquidity, but it’s unclear if they’ll be able to keep up with their obligations.

Shares of Thornburg, which fell 16 cents to $3.40 in regular session trading Wednesday, plummeted another $1.40, or 41.18%, to $2.00 on the news.

Earlier in the day, the stock was downgraded from “buy” to “hold” by a Jeffries & Co. analyst after a previous downgrade Tuesday by RBC Capital Markets from “sector perform” to “underperform”.

Just goes to show that no lender is safe in this environment, even a lender that works with “sophisticated borrowers with excellent credit.”

(photo: binaryape)

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