ReutersThornburg survival at stake after big margin callsFriday...

Reuters
Thornburg survival at stake after big margin calls
Friday March 7, 3:44 pm ET
By Jonathan Stempel


NEW YORK (Reuters) - Thornburg Mortgage Inc (NYSE:TMA - News), which provides loans to help people buy expensive homes, said on Friday its survival is at stake because it cannot meet its own lenders' demands for $610 million of cash or collateral.
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Shares of Thornburg fell 43 cents, or 26 percent, to $1.22 in afternoon trading on the New York Stock Exchange. The news caused a decline in bank stocks and broader U.S. market indexes on concern that credit market turmoil may spread further.

Thornburg said falling mortgage prices, together with liquidity imperiled by a surge of margin calls from its own lenders, "have raised substantial doubt about the company's ability to continue as a going concern."

It said the margin calls "significantly exceeded" its cash, though some lenders froze further calls through Friday. Margin calls force borrowers to pay back loans or post collateral.

"It appears the state of this company rests in its lenders' hands," said Steven Marks, a managing director at Fitch Ratings in New York. "The fact lenders have frozen additional margin calls gives the company more oxygen."

Thornburg also said it will restate 2007 results and take a $427.8 million charge for its holdings of adjustable-rate mortgages. It said its auditor, KPMG LLP, concluded its 2006 and 2007 audit report should no longer be relied on.

Analysts have said Santa, Fe, New Mexico-based Thornburg might need to file for bankruptcy protection.

The company has struggled as investors stop buying many mortgage securities they no longer consider safe. These include the large, adjustable-rate mortgages in which Thornburg specializes, including many with "triple-A" credit ratings.

"What you're getting is a massive unwinding of an overleveraged asset, residential housing," said Stephen Kane, managing director at Metropolitan West Asset Management in Los Angeles. "Prices have overreacted relative to fundamentals, but sellers aren't necessarily overreacting: they're doing what they're being forced to do by lenders that are, in effect, seizing collateral."

THORNBURG CEO SEES "IRRATIONAL" PANIC

Thornburg said it working on ways to strengthen its finances, including through asset sales, debt offerings, and the raising of equity capital.

"The panic that has gripped the mortgage financing market is irrational and has no basis in investment reality," Chief Executive Larry Goldstone said in a statement. He said Thornburg is working to meet its obligations so it can "continue as a going concern, and ensure stability."

Thornburg on Wednesday said its failure to meet a margin call from JPMorgan Chase & Co (NYSE:JPM - News) triggered defaults and "material" obligations under other loan agreements.

Shares of Thornburg closed at $11.54 on Feb 27, the last day before it began disclosing a series of margin calls.

It has said these started after Swiss bank UBS AG (VTX:UBSN.VX - News) on Feb 14 announced a $2 billion write-down on $26.6 billion of "Alt-A" mortgages. These typically go to borrowers with good credit but who cannot fully document income or assets.

Other firms are also struggling with margin calls. Carlyle Capital Corp (Amsterdam:CARC.AS - News), which invests in mortgage securities and is affiliated with the private equity firm Carlyle Group (CYL.UL), said on Friday its cash could run out following its failure to meet margin calls from its own lenders.

"Given time, some of Thornburg's triple-A paper may have more value," said Marks, the Fitch analyst. "But the market is taking a different view now."