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Thornburg Cites Financing Woes But Rules Out Chapter 11

CNBC.com
Tuesday, 14 Aug 2007 | 6:35 PM ET

Thornburg Mortgage's president told CNBC that the mortgage lender is having problems raising financing but has "no intention" of filing for Chapter 11 protection.

Thornburg Mortgage President
Thornburg Mortgage says it is experiencing delays in ability to fund loans, and the company's president, Larry Goldstone, discusses the issue with CNBC's Erin Burnett

In an exclusive interview on "Kudlow & Company," Larry Goldstone said that "Chapter 11 does not solve our problems. In fact, it would only make them worse. We have no intention of filing Chapter 11."

"We've been able to meet all of our obligations," Goldstone said. "We've been rolling over and financing our portfolio. It's been an amazing struggle to get that done."

Thornburg shares plunged 46% Tuesday after several brokerages and Moody's Investors Service downgraded the residential mortgage lender amid concerns about liquidity. The shares have lost more than three-fifths of their value this month. Thornburg bonds also fell.

Shares were halted just before the market closed, after which Thornburg said it would delay its second-quarter dividend, was was due to be paid Wednesday, for a month.

Like many rivals, Thornburg has struggled because investors, wary of rising defaults, have refused to buy many kinds of loans. Among them are loans considered high quality, including Thornburg's specialty, prime "jumbo" loans--those above $417,000.

Many bankers are also refusing to extend credit to mortgage lenders. Nonetheless, Moody's said Thornburg has "superior asset quality."

Earlier Tuesday, Thornburg said that because of "unprecedented and irrational sentiment" in the secondary market, it will not accept new requests to lock in rates for four days.

"Financing in the jumbo mortgage space is difficult," Thornburg said in the CNBC interview. "But we are navigating our way through this process."

He added: "There are so many rumors flying around the Street, particularly about Thornburg Mortgage. But 80 percent of what you're hearing just isn't true."

Asked if the Federal Reserve could accept collateral other than Treasurys or other government-backed debt, Goldstone was doubtful:

"We've actually explored this over the last several days. We've spoken to our representatives here in New Mexico. We've had communications into the Fed, the Treasury department, the president trying to communicate what we think is ia very severe issue for the housing market and it's not about Wall Street," he said.

"It's about Main Street, because Main Street is being negatively affected by mortgage interest rates for jumbo mortgages today and its all because of this dislocation that's going on in the credit markets. Apparently, the Fed cannot change their collateral requirements like the Eurpean Central Bank...But I do believe the Fed could do some jawboning. I think they could get involved in a dialogue basis with the major banks and major Wall Street dealers and begin to provide some liquidity into the system."

Paul Miller, a Friedman Billings, Ramsey analyst, downgraded Thornburg stock to "underperform" from "market perform," citing "the current liquidity crisis in the asset-backed commercial paper and repurchase markets, coupled with the freezing up of the secondary market for jumbo loans."

Equity analysts from Credit Suisse, Jefferies and RBC Capital Markets also downgraded Thornburg to their lowest ratings.

Credit Suisse analyst Moshe Orenbuch said Thornburg's quarterly common stock dividend might fall to 25 cents per share from 68 cents by the fourth quarter. He said Thornburg may need to pledge more assets as collateral as lenders step up margin requirements.

On Tuesday, Moody's downgraded Thornburg's senior unsecured debt by two notches to "B2," its fifth-highest "junk" grade, from "Ba3," and said another cut is possible. The rating agency
cited "dislocations" in the market for jumbo mortgages, though it said Thornburg has "superior asset quality."

Another rating agency, Standard & Poor's, on Friday cut Thornburg debt three notches to "B-minus," roughly one notch below Moody's "B2" rating.

Thornburg's 8 percent notes maturing in 2013 fell nearly 11 cents on the dollar to 63 cents by mid-afternoon Tuesday, with a yield of 18.79 percent, according to Trace, a bond pricing
service of the Financial Industry Regulatory Authority. Five-year U.S. Treasuries yielded about 4.5 percent.

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