If Thornburg's Issue Fails Today, Which Banks Will Hurt?

On last week's conference call to announce Q308 results, mortgage REIT Thornburg Mortgage (TMA) said they were banking on the success of a preferred stock tender to raise cash:

We are about 40 basis points short, a little less than one half a percent short in the series F preferred stock and so consequently we are feeling fairly confident but certainly not too confident but at this moment fairly confident that we are going to be able to finally complete the tender offer. You’ll be looking for an announcement to that effect on Wednesday of next week.

If you could just give us a few days, we will get those shares issued and then subsequent to that we will get the additional warrants issued to all the senior subordinated note holders just as quickly as we can.

After ratings agencies Fitch and S&P downgraded Thornburg, the REIT suffered a spate of margin calls. There may be more downgrades and margin calls to come, and there is a "going concern" warning on the company.

Hopefully the tender will go well-- it’s set to close today, November 19. If it doesn’t work out, however, guess who’s on the hook? From Thornburg Mortgage's Nov. 17 Wall Street Analyst call transcript:

I think the key to our survival has been the standstill agreement that we are able to negotiate with our repo lenders largely due to the credit quality of our portfolio. And by its original terms, we were able to suspend margin calls on $5.8 billion of repo financing back in March. It was debt standstill that allowed us to raise $1.2 billion worth of debt.

And at the end of the March, which has sustained us through this period, we basically have 5 repo counterparties, currently was Bear Stearns, now JPMorgan (JPM), Citi (C), Credit Suisse (CS), RBS Greenwich (RBS) and UBS (UBS). The financing rate is LIBOR plus 35 which is very favorable. And I think the benefits to us is that we are able to avoid $90 million of margin calls that occurred in March and basically a suspension of the rights to the repo lenders through the end of this March. Clearly that time is running out though and we are looking to replace this financing by March of next year.

 

Comments

[doggydogworld:]

The preferred tender has nothing to do with raising cash.

2008 Nov 19 10:20 AM

[Ishortyou:]

nope its only to change the rules of the game so it will free up cash to make them operative again, but oh well creditors need the money as well I guess.

2008 Nov 19 10:55 AM