Thornburg Reprieve Not So Sweet

March 19, 2008 No Comments »

bitter

Jumbo mortgage lender Thornburg Mortgage announced today the details of its previously disclosed lender reprieve, revealing the need to quickly raise $1 billion to stave off a potential bankruptcy.

The 364-day override agreement, which involves Bear Stearns Investment Products Inc., Citigroup Global Markets Limited, Credit Suisse Securities (USA), Credit Suisse International, Greenwich Capital Markets Inc., Greenwich Capital Derivatives, Royal Bank of Scotland, and UBS Securities, is contingent upon a variety of factors.

The most urgent being a requirement to raise a minimum of $948 million in new capital within seven business days.

Thornburg said it planned to raise the money by selling at least $1 billion of senior subordinated notes due in 2015 that carry a 12 percent interest rate and are initially convertible into stock at 75 cents per share.

The company has also agreed to suspend its common stock dividend during the term of the agreement and issue warrants to the note holders for the right to purchase approximately 47 million shares of Thornburg common stock at an exercise price of $0.01 per share for a period of five years.

That amounts to 27 percent of the company’s outstanding common stock, although the convertibility of the notes into common stock will be contingent upon shareholder approval, to be voted on or before May 22, 2008.

The agreement also requires Thornburg to establish and maintain a $350 million liquidity fund and maintain an amount in that fund equal to 5% of the monthly outstanding borrowings of its reverse repurchase agreement counterparties.

“After careful consideration of our available options given the continued challenges in the mortgage securities markets, the company’s board of directors determined that the override agreement and this proposed capital raise and warrants offerings, though highly dilutive for existing shareholders, are in the best long-term interest of the company,” said CEO Larry Goldstone.

“By placing a one-year moratorium on margin calls and raising the required amount of capital specified in this agreement, we believe we will have the necessary liquidity and staying power to manage through this highly volatile and uncertain mortgage market environment.”

Shares of Thornburg Mortgage, which specializes in jumbo mortgages and adjustable-rate mortgages, fell $1.34, or 44.97%, to $1.64 in afternoon trading on Wall Street after surging 30 percent one day earlier.

(photo: kzev)

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