Thornburg Financing Conditions Hinder Shares (TMA)

Thornburg Mortgage, Inc. (NYSE:TMA) is seeing shares get hit this morning.  While new financing may be a reprieve, it looks like it is coming at a high price with conditions that will be difficult to maintain. 

The company announced that it has entered into an agreement for 364 days with 5 of its remaining reverse repurchase agreement counterparties and their affiliates, who are providing approximately $5.8 billion of reverse repurchase agreement financing.   These counterparties agreed to a contractual reduction of margin requirements and agreed to a suspension of their rights to invoke further margin calls and related rights. This includes subsidiaries of Bear Stearns, Citigroup, Credit Suisse, Royal Bank of Scotland, and UBS Securities LLC. 
While Thornburg has already made reductions, it must further reduce its current reverse repurchase agreement borrowings outstanding with two reverse repurchase agreement counterparties by an additional $1.2 billion combined.  This will be achieved either through asset sales or transfers of collateral specified.

The continued effectiveness of this agreement is contingent upon a variety of factors, most importantly one that requires that Thornburg Mortgage raise a minimum of net proceeds of $948 million in new capital within seven business days.  It must also establish and maintain a liquidity fund in the amount of $350 million, and to maintain an amount in that fund equal to 5% of the monthly outstanding borrowings of its reverse repurchase agreement counterparties in investments.

You should read through the full press release because the terms go on and on.  Thornburg shares are down over 10% at $2.60 in early trading.  It looks like the initial fears about having to give away the keys to the castle may be more prevalent than the original filing from 2 days ago to raise capital.  The situation at Thornburg may be getting tougher before getting easier.

Jon C. Ogg
March 19, 2008