Thornburg Raises $1.35 Billion to Avoid Bankruptcy

The New York Times

April 2, 2008 Wednesday
The New York Times on the Web

BYLINE: By REUTERS

SECTION: Section ; Column 0; Business/Financial Desk; Pg.

Thornburg Mortgage shares rose nearly 20 percent Tuesday after the company, which provides large residential mortgages, said it successfully raised $1.35 billion in a last-ditch effort to avoid bankruptcy.

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 a share and a stake in some mortgage assets.

The company said it had received $1.15 billion of the proceeds and expected to receive the remaining $200 million after a tender offer for preferred stock.

''It should keep them out of bankruptcy,'' said Jason Arnold, an analyst at RBC Capital Markets in San Francisco. ''They gave away everything and the kitchen sink to get the deal done. Thornburg will have a lot of constraints on how it uses capital, and now has reputational challenges to overcome.''

Thornburg, based in Santa Fe, specializes in ''jumbo'' mortgages above $417,000, which have typically gone to buyers of more expensive homes who have good credit.

The company had long boasted of the credit quality of its $35.2 billion portfolio of adjustable-rate mortgages, but it proved vulnerable to tightening credit markets as investors stopped buying those home loans.

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

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

Existing shareholders are expected to retain just a 5.5 percent stake in the company. An earlier plan for Thornburg to raise $1 billion by selling convertible debt with a 12 percent interest rate failed.