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Thornburg Shares Jump After Averting Bankruptcy

Thornburg Mortgageshares rose Tuesday after the provider of large residential mortgages said it successfully raised $1.35 billion in a last-ditch effort to avoid bankruptcy, but at a large cost to existing shareholders.

In a statement late Monday, Thornburg said it sold subordinated secured notes with an initial 18 percent interest rate, warrants to buy common stock at 1 cent per share, and a stake in some mortgage assets.

It said it has received $1.15 billion of the proceeds, and expects to receive the remaining $200 million following a tender offer for preferred stock.

The terms were more costly to shareholders than Thornburg had estimated when it announced plans on March 25 to sell the notes, Credit Suisse analyst Moshe Orenbuch wrote.

Existing shareholders are expected to retain just a 5.5 percent stake in the Santa Fe, New Mexico-based company.

An earlier plan for Thornburg to raise $1 billion by selling convertible debt with a 12 percent interest rate failed.

"Earnings available to the common shareholders will remain depressed," wrote Orenbuch, who rates Thornburg "underperform" and halved his share price target to 50 cents.

He estimated Thornburg must generate more than $325 million of revenue a year to cover debt interest payments and operating costs.

Thornburg specializes in "jumbo" mortgages above $417,000, which have typically gone to buyers of more expensive homes.

It generated $316.3 million of net interest income in 2007, according to its annual report.

While much of Thornburg's $35.2 billion adjustable-rate mortgage portfolio consists of larger home loans made to people with good credit, the lender proved vulnerable to tightening credit markets as investors stopped buying those mortgages.

Until recently, jumbo mortgages were also too large to be acquired by Fannie Mae and Freddie Mac.

Thornburg said it will use sale proceeds to satisfy margin calls.

It had earlier in March set an agreement with five lenders to stave off further demands for cash or collateral, as long as it quickly raised at least $948 million.

Last week, Thornburg said affiliates of MatlinPatterson Global Advisers LLC, which invests in distressed companies, had agreed to buy $450 million of the new notes.

As part of the offering, some investors may also designate up to five members of Thornburg's 10-member board.

Thornburg shares rose 19 cents to $1.40 in early-afternoon trading, New York Stock Exchange data show.

The shares have plummeted from a 52-week high of $28.40 set last May 1.

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