Thornburg Raises $1.35 Billion to Avoid Bankruptcy

Thornburg's Fight for Survival

Thornburg Mortgage, a jumbo mortgage provider that has been trying to avoid bankruptcy, on Monday said it raised $1.35 billion from a sale of debt and warrants to buy common stock.

The Santa Fe, New Mexico-based company said it has received $1.15 billion of the proceeds, and that the other $200 million will be held in escrow until the completion of a tender offer for preferred stock. It said the new subordinated notes carry an initial interest rate of 18 percent.

Existing shareholders will see their interests significantly diluted by the offering. Thornburg said that upon completion of the various transactions, common shareholders will hold about 5.5 percent of its common stock.

Thornburg specializes in adjustable-rate mortgages in amounts above $417,000, which have typically gone to buyers of more expensive homes who are considered good credit risks. Many investors, nevertheless, stopped buying these mortgages as credit markets tightened.