Thornburg's a Huge Bargain After Monday's Crash 657 comments
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Thornburg Mortgage (TMA) is a major single-family residential mortgage lender (and mortgage REIT) focused principally on prime and super-prime (i.e., high-credit-score) borrowers seeking jumbo and super-jumbo mortgages. Even though TMA has never held a subprime loan (that I know of) in its life, it got taken to the woodshed along with every other lender as a result of the subprime implosion of the last few months. During that time, TMA's stock price cratered from about $30 to about $10.
Things looked up in early Feb, 2008, when TMA reported a profit of 33 cents a share (Wow! A residential lender that's profitable?!) and in reading between the lines, one got the idea that subsequent quarters would be even better. But given the volatility in this space, this good news was not to last.
On Feb. 28, Thornburg said it was facing margin calls because the value of some of its mortgages had fallen amid "a sudden adverse change in mortgage market conditions" that began on Feb. 14. As of Feb. 28, TMA had met margin calls totaling $300 million, which reduced liquidity it might need to meet future margin calls, if any. Thornburg also said, however, that its securities faced a relatively low risk of further downgrades due to their quality.
That sanguine assessment turned out to be incorrect. Monday morning, before market open, TMA announced another $270 million in margin calls—and also stated it did not have the cash to meet the calls. As a result, Standard & Poor's cut its rating on Thornburg to 'SD' - one of the lowest grades possible - from 'B-.' The new rating indicated that Thornburg was in "selective default" because of a default notice it had already received.
Thornburg said the margin calls are "strictly a result of the continued deterioration of prices of mortgage-backed securities precipitated by difficult market conditions." The calls are not reflective of the actual performance of the securities, the company added. Regardless of the reason for the calls, TMA advised that yesterday's margin call could "have a material adverse effect on the company's ability to continue its business in the current manner."
Not surprisingly, shares crashed about 60% yesterday, hitting an intraday low of $3.53 after having closed at $8.90 on Friday, which itself was a big drop from $14 earlier in February. It was while TMA was trading under $4 around mid-day yesterday that I bought 20,000 shares at $3.81/share. These were my reasons for doing so:
1) TMA's business has nothing to do with subprime loans, which have default rates of 10%+. TMA's default rate is less than 0.5%.
2) A couple of months ago, Mr. Thornburg himself bought 1 million shares of TMA at about $10/share. Other insiders own a lot of TMA as well. It is my belief that when insiders own that much stock—much of it acquired at a price more than double the $3.81 I paid—they are going to work very hard to make sure the company does not go belly-up.
3) The underlying business allowed TMA to earn 33 cents per share in the most recent quarter, reported about one month ago. TMA's profit margins have actually substantially expanded in the past few months, suggesting greater profit potential once things settle down. Even if TMA did not grow its profit at all, at 33 cents per quarter, it would make $1.32. At $3.81/share, that's a PE of less than 3.
As long as TMA is not entirely incapacitated by the margin calls (and that is certainly a possibility), there is no reason to believe its earnings going forward should be much less than $1.30, but even if they decrease by 50%, that's only a PE of a bit over 5.
4) To put it a different way, iF TMA keeps making 33 cents per quarter and gets valued at a PE of 10 as market conditions improve and margin calls are done with, its stock value would be about $13. Thus, at $3.81, a very good risk-reward ratio exists. Also, it is worth noting that TMA was valued at $14/share less than one month ago, and unlike many other lenders, TMA's underlying business hasn't imploded.
5) TMA faced billions in margin calls in August 2007 and handled that emergency just fine and even lived to tell the tale.
6) I also figured that such a good business with such good underlying collateral (a default rate of less than one-half of one percent, especially in today's environment, is nothing short of spectacular) would be able to attract capital to meet Monday's margin call. I was hoping that the capital would be in the form of debt (in effect, a refinancing) rather than a bottom-feeder taking significant equity, but either would have been OK. It just seemed to me that a bailout of one kind or another was extremely likely given the good quality of TMA's mortgages.
Well, at 3:23 PM, while TMA was trading at about $3.60 (a bit under my entry price of $3.81 - oops!), TMA made this announcement:
Thornburg Mortgage, Inc., today announced the completion of a collateralized mortgage debt transaction collateralized by $992 million of the company's prime hybrid adjustable-rate mortgage loans in the publicly registered Thornburg Mortgage Securities Trust 2008-1. This transaction was accounted for as a financing and not as a sale and the proceeds were used to reduce the company's borrowings under its ARM loan warehouse financing lines by approximately $920 million.Going forward, Thornburg Mortgage anticipates an increased use of collateralized mortgage debt financing and reduced reliance on reverse repurchase financing. At December 31, 2007, 64% of Thornburg Mortgage's mortgage assets were permanently financed by collateralized mortgage debt transactions as compared to 37% at June 30, 2007.
In summary, this transaction enhances Thornburg Mortgage's liquidity position and provides long term financing for the company's originated mortgage loans.
The stock immediately ran up from $3.60 and traded between $4.30 and almost $5.00, closing at $4.32. Although we don't know how much TMA paid (in transaction costs and interest rate) to attract this capital (undoubtedly, TMA paid a premium), I'm glad they got the cash via debt rather than equity.
Because I think we'll hear about further liquidity enhancements going forward, and for the reasons I noted above, I ended up buying another 10,000 shares near the end of the day (at $4.51/share). Assuming a press release describing additional liquidity enhancement and/or upgrades, I expect to see TMA go over $5, and probably closer to $6. If earnings in the 20-30 cent range are reaffirmed in the near future despite the margin calls, I expect to see $7. And if things settle down in the mortgage business—as they will in the next year or so, especially for a company holding only prime and super-prime debt—I see TMA at $15.
Of course, if additional margin calls materialize and are unmet, I see TMA going back to $3/share. Given the billion dollars TMA picked up today, and the excellence of its underlying mortgages, I consider the latter possibility rather small. Therefore, I think that at $4+ (or even $5+), TMA presents a very good risk-reward opportunity, albeit for investors who can tolerate risk.
Disclosure: Long TMA
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Given the uncertainty about who the gains in the repo book will go to until the vote occurs and the pref tenders, my guess is they will continue to mark to market for the time being. Also the financing is only locked for one year and not for the term of the assets.
Jon
Or why the pref F is down a few percent today?
Has anyone looked carefully at the issue of what differences there are, if any, between the various preferred classes vis-a-vis the recent $1.35 billion financing terms for buyout of the preferred?
Jack
And Jack, I can't deal with the size of this web page any more. It is just too long and too hard to find where the most recent posts are, etc. So, I bid you all farewell. I normally post on the craiglist money forum as crazee_unchained. Catch you all later and hope you make money off your trades.
If you are having difficulty posting to this discussion board due to its lengthiness, try posting from SeekingAlpha's "TMA Forum". It is much easier to navigate:
seekingalpha.com/mb/to...
On Apr 08 08:11 PM crazee_trader wrote:
> As a note, the poser "crazee_trade" (missing the 'r') is not me.
> I only post under this name. I don't know why they chose to use my
> partial name as their username.
>
> And Jack, I can't deal with the size of this web page any more. It
> is just too long and too hard to find where the most recent posts
> are, etc. So, I bid you all farewell. I normally post on the craiglist
> money forum as crazee_unchained. Catch you all later and hope you
> make money off your trades.
Taking Stock
New York, New York
April 4, 2008
MARGARET POPPER, ANCHOR: Thornburg Mortgage averted bankruptcy this week by raising more than a billion dollars; but it came at a big cost to existing shareholders. You’ll hear from Thornburg’s CEO, Larry Goldstone. Plus, an analyst on how you can profit from the deal.
Well, Thornburg Mortgage averted bankruptcy this week by getting one-point-three billion dollars in financing, but it was not cheap. Thornburg gave the new investors a nearly ninety-five-percent stake. On top of that, it’s going to pay an initial yield of eighteen percent. Joining us now is Thornburg’s CEO, Larry Goldstone.
Larry, welcome. I want to ask you—this is a very complicated deal and there’s one piece of it that seems to kind of hang out there as a bit unusual; and this is the senior subordinated note, which is a secured note. Seems like that wouldn’t normally be subordinated. Can you explain
----------------------...
how that works and how this cash flow feature that seems to go to pay that off first fits into the capital structure here?
LARRY A. GOLDSTONE: Well, it is a senior subordinated security, and secured; but it does rank junior to our existing senior notes. And, so, it is not senior to our existing senior debt obligation. Both of those…
POPPER: But the cash flow, the cash flow picture…
GOLDSTONE: …both of those obligations are now secured. So, what investors may not realize is that the senior notes, in addition to the senior subordinated notes, are now the beneficiary of a secured interest as opposed to being unsecured senior notes previously.
POPPER: And what are they secured by? What are the assets?
GOLDSTONE: They are secured by the interest cash flows that come off of the company’s mortgage portfolio going forward.
POPPER: So, this is the entire…?
GOLDSTONE: So, that is the security interest that they have.
POPPER: …mortgage percent portfolio? The entire mortgage portfolio?
GOLDSTONE: Yeah, it’s correct.
POPPER: Okay.
GOLDSTONE: That is correct.
POPPER: And these are high-quality, jumbo mortgages.
GOLDSTONE: These are triple-A rated—for the most part—triple-A-rated mortgage securities backed by jumbo mortgages, yes.
POPPER: Okay, does the news that we just had about MBIA losing its credit rating—being downgraded by Fitch—does that affect the quality of any of these?
GOLDSTONE: It does not. None of our mortgage securities portfolio are guaranteed or have a credit rating that’s based upon any of the monoline insurance companies.
POPPER: Okay, so, one of the things I want to understand here: you—obviously, you’ve got to keep functioning. You’ve raised enough money to stave off bankruptcy for now. But you were making some very optimistic comments to Bloomberg about the jumbo mortgage market, and I’m wondering, are you actually seeing business? I talked to Kevin Stark, who’s an investor in distressed assets, and he said when you called, or when you call the line for Thornburg, you get a quote on those mortgages that’s much higher than the competition right now, because your cost of capital is so high.
----------------------...
GOLDSTONE: Well, we have had to curtail the majority of our loan origination activities over the last four to six weeks. But now that we have recapitalized the company, now that we have got an agreement in place with our lenders, such that we are not going to be subject to, uh, margin calls on our reverse repurchase agreement debt, we are now going to be able to restart our loan origination and loan funding network. And, at some point, as we clear out our back log…
POPPER: But do you actually have the cash to do that? Do you actually have the cash to make loans?
GOLDSTONE: We do.
POPPER: How much?
GOLDSTONE: We have commitments for warehouse financing agreements of up to seven hundred million dollars. We have a hundred and fifty million dollars in working capital; and we have a liquidity facility of another three hundred and fifty million dollars.
POPPER: So, Larry…
GOLDSTONE: So, all told, we think we can easily support a five-hundred to seven-hundred-and-fift... mortgage pipeline going forward.
POPPER: And how long do you have to hold on before you start to get business back to normal?
GOLDSTONE: Well, in August and in September of last year, it took us three or four months to restart our origination business and begin to see some very, very positive momentum. But, by the time we got into the December and January timeframe, our business was actually reaching levels that were exceeding what they were prior to August of 2007. My sense is it’s going to probably take us a couple of more months. We have to rebuild confidence again; we have to rebuild our franchise and our relationships again. But I am highly confident we’re going to be able to do that, because, truthfully we are one of the few jumbo and super jumbo mortgage lenders left in the business today.
POPPER: But how long does it take for your financing costs to come down to a level where you can actually be profitable doing this? I mean, if you’re quoting nine-and-a-quarter interest rate for jumbo mortgages, and somebody can call Chase and get, you know, six or seven, why would they go to you?
GOLDSTONE: Our funding cost is not based upon the nine-and-a-quarter percent. Our funding cost is based upon the securitization execution we can get in the marketplace; and that’s somewhere in the neighborhood of six percent, give or take a little bit in today’s environment. And, so, consequently, as we clear out our loan pipeline, you’ll begin to see our mortgage rates come back down as we begin to encourage business as opposed to what we’ve been doing over the last month, which has been to discourage business.
----------------------...
POPPER: Okay, and in terms of the marketplace, what is your sense of the appetite out there? We are going into a recession. This seems like an un-advantageous time to be lending big loans for big houses.
GOLDSTONE: Well, actually, the markets that we lend in and the clientele that we lend in continues to be a fairly stable segment of the market. Our average loan size is a million dollars; our average home value is a million and a half to two million dollars. We tend to lend in the major metropolitan areas – Manhattan, Greenwich, Connecticut, San Francisco, coastal areas along California – and those markets continue to do very, very well.
POPPER: Now, our most…
GOLDSTONE: A segment of the mortgage market that’s not doing so well is, really, the three-hundred-thousand... and lower home segment of the market.
POPPER: Now, in that category, are most of the homes that you’re lending for – are they primary residences or a bunch of these secondary residences for very wealthy people? And those people have been hit by the stock market. Might they sell some of these properties?
GOLDSTONE: Well, they might. The majority of our loans, though, are for single-family, owner-occupied, primary residences. That would constitute somewhere between—around seventy-five percent of the loans that we do. For the Baby Boomer Generation and for the retiring generation who also want a second home or a vacation home we do facilitate mortgage loans for those folks as well.
And, truthfully, the stock market is not down all that much. I mean, it’s down, maybe, ten percent from its peak. So, the stock market has not been doing that poorly in diversified portfolios.
POPPER: All right. I want to get back to this deal again – I threw a bunch of questions, yeah, at you [laughs] when we came out of the box here just ‘cause it’s so complicated, I’m so interested in it. Explain to me this primacy of cash flow feature that goes with…
GOLDSTONE: Well, let me break this into three component parts, because the security that we issued in this transaction really has three component parts. There is a secured note. It bears an interest rate of eighteen percent today. But, upon successful tender of our preferred stock and successful vote to authorize an increase in the number of shares that the company can issue, the interest rate on that note will drop to twelve percent.
The second component is warrants. All of the investors who bought the secured notes also get warrants to buy common stock at one penny a share.
The third component is a component that only becomes effective if, in fact, we do not successfully tender for the preferred stock, and we do not successfully increase the authorized number of shares. That’s called a Principal Participation Agreement; and that Principal Participation Agreement comes into effect a year from today, when our loan—or, or our override agreement, which is the agreement with our lenders, expires. And that allows the secured
----------------------...
subordinate note holders and the senior note holders to participate and capture the principal payments on our mortgage portfolio. So, those are the three component parts.
POPPER: Okay, so, in essence, are you structuring that debt in a way that forces the current shareholders to tender? Because, obviously, they are being diluted down to about five percent of the company at this point; so they need, potentially, a little nudge to get them to take this deal.
GOLDSTONE: Right. Well, what we need from the common shareholders is for them to vote to increase the authorized number of shares. We are not tendering for common stock. What we need from the preferred stockholders is for them to tender their preferred shares. And, yes, there is a nudge in place to incentivize them to want to tender their shares and to become common equity holders. Because, ultimately, we think that’s where the upside potential is going to be, anyway.
POPPER: And is your sense that you’re going to get enough shareholders to authorize this and that you’re actually going to be successful in this financing?
GOLDSTONE: Well, we certainly hope so; and we certainly think that the incentives are in the right place for everyone in the capital structure today to cooperate as we move forward. If everybody cooperates, we think that there is significant upside for those investors, based upon where we are today, and certainly better than where we would have been had we not raised this new capital.
If they don’t cooperate and participate and if they don’t authorize and tender what we need to have done, then, in fact, the returns that they’re going to be able to experience are going to be greatly diminished over time.
POPPER: Well, Larry Goldstone, thank you so much for coming to us and describing this very complicated and very fortuitous deal. Larry Goldstone, CEO of Thornburg Mortgage.
On Apr 9 Hugh Entrekin wrote an interesting piece on Seeking Alpha called "Is TMA worth 3.88B?" It included an analysis of the inevitable price decline of the common stock as the massive dilution begins on Friday 11 April when Rainwater among others presumably converts his warrants to common shares. (Please help me out here in understanding the registration process of new shares for example how long does the process go on? I don't suppose it's a case of the float doubling overnight, or is it? He names book value 0.06 and a rise to 0.60.
What interested me about the article was the mention of the NYSE list of threshhold securities which I wasn't aware of. So I looked it up and here is what they are: (from NYSE Regulations website.)
Threshold Securities
On July 28, 2004 the Securities and Exchange Commission ("SEC") adopted Regulation SHO with a compliance date of January 3, 2005. Regulation SHO requires Self Regulatory Organizations ("SRO") to disseminate a daily list of "threshold securities" where such SRO or its market center is the primary listing venue for any such security. Rule 203(c)(6) of Regulation SHO defines a threshold security as any equity security of an issuer that is registered under Section 12, or that is required to file reports pursuant Section 15(d) of the Exchange Act where, for five consecutive settlement days: (1) there are aggregate fails to deliver at a registered clearing agency of 10,000 shares or more per security; (2) the level of fails is equal to at least one-half of one percent of the issuer's total shares outstanding; and (3) the security is included on a list published by an SRO. Accordingly, the NYSE will post a list of threshold securities to this site for every settlement day, including any such day where DTCC is open and settling transactions but, the NYSE is closed.
From time to time, upon application from a NYSE specialist to continue to fulfill its obligation to maintain a fair and orderly market pursuant to NYSE Rule 104, a temporary exemption from the close out and/or borrowing requirements of Regulation SHO, 17CFR 242.203 (b)(3), may be recommended by the New York Stock Exchange and granted to the NYSE specialist in the security, by the Securities and Exchange Commission. The temporary exemption would normally last no longer than 30 days but may be renewed, depending upon the particular circumstances. The fact that a NYSE specialist has been granted an exemption will initially remain confidential to protect the NYSE specialist's position in the subject security
I checked the list and found that TMA has been on it since March 12 until the present. Now I really don't have the knowledge to understand the ramifications of this in the present situation except to hazily understand that some possibilities might be created for the warrant holders to start with. Entrekin finishes with this:
Once they actually own the new shares on the 11th, I believe the owners of these new shares will figure out a way to quickly take advantage of the price abnormality in the current price of the common through shorting or sales to others who will short.
Even if it does not start on the 11th, given the total likely 2.9 billion new shares which the company must register, soon there will be way more sellers and the price will go to where it belongs.
Look at put option pricing for July and October; it implies a share price below 0.50 and further out implies even lower prices.
Anyone with any sense will sell now.
My question for Jack and all you others more knowledgeable than I am is this. Is it possible for me to use this information to my advantage as a holder of common stock at a price of close to 3.00?
I'm hurting here and would appreciate your thoughts as to specific instructions I could give to my broker in such a scenario as Entrekin proposes.
As you all know, I bought 50,000 shares before I wrote the article that launched this fascinating blog. As some of you may know, I promised to let people here know the moment I sold my shares, if in fact I did so. I have today sold my shares (actually, they were still executing as I began to type this) at $1.27 (note added on proofreading--they took about 30 minutes to all sell at $1.27).
I actually tried to put the sell in at $1.36 yesterday but my trading software wouldn't let me do it because it would have left me in the position of having sold 500 call contracts naked. I had to do an updated options application, and was just authorized a few minutes ago to do my sell (I still am in the position of having sold 500 naked call contracts at $2.50 strike, expiring next Fri).
My reasons for selling are both macro and micro:
1) MACRO--I believe the market is overpriced at 12,600, and I believe the financials are in for some more pain. I believe the potential for 600 points down (DOW 12,000) is substantially (70:30) higher than 600 points up (DOW 13,200). Not that TMA trades much with the market, but a downgoing market does not help.
2) MICRO:
a) I carefully read Entrekin's article, referred to above, and it was quite reminiscent of what Gfather and others had posted here--and I really could not argue with what he said. It was well-reasoned, and carefully analyzed. Even if you disagreed with his precise numbers, the most compelling part for me was the book value calc assuming FULLY-VALUED (not discounted) assets, which was about 50 cents/share on fully diluted basis.
Even if you give the TMA enterprise a value of $300 million, that only adds 10 cents per share to the book value (assuming 3 billion shares). Even a billion dollars of enterprise value and assuming fully-valued assets yields a book value of 80 cents.
b) It is true that TMA can add value going forward by operating its business, and I believe that it will be able to do so. Whether it's politically correct or not to say it, the super-prime borrowers which it serves (avg loan size $1 million, average FICO score 744) are never impacted by economic upheavals as much as the rest of the world.
In addition, lots of other jumbo lenders are hurting as well (WAMU), and in theory, spreads (ie, profit per dollar of loan lent by TMA) will undoubtedly be higher than in the past, although total dollars loaned may well be lower. The problem is TMA's cost of funds, which is effectively 12-18% on the first billion of borrowing.
TMA's "blended" cost of funds will be substantially lower (because if they borrow $5 billion total, and the $4 billion balance borrowed is at 6%, then their "blended" cost of funds is about 7.2%), but $120-$180 million in interest cost right off the top is a pretty serious hit to the bottom line.
It's not an insurmountable hit, but it's prretty serious, nevertheless.
c) The interview with Goldstone shed no light for me. Pretty much everything he said, we (followers of this board) already knew. He offered no upside potential for surprises (I didn't really expect him to, but if he had talked about something I hadn't considered, that obviously could have changed my outlook).
d) There is significant potential tomorrow for some articles to be written on the significant dilution that will occur tomorrow. It's not clear to me what the nature of the restrictions on selling those additional shares is, but some posters to this board and Entrekin have suggested that there are ways around those limits. Obviously, if an additional 10, or 20 or 30 million shares come onto the markets tomorrow, it will push the price down.
e) Finally, the key reason that I have held my shares over the past few weeks is because I was handsomely rewarded for selling calls--about 20 cents twice, once in March, once in April. But reflecting far lower expectations that TMA has a chance of hitting $2.50 this year, the October $2.50 calls which were fetching around 40 cents a month ago are now quoted at 5 cents bid, 10 cents ask--but not a single contract has traded today.
In other words, there is almost no money to be made in selling calls on TMA while waiting for things to look up min 2009 and beyond.
In my next post, I will discuss other thoughts on TMA (I did not want to delay posting this one).
Jack
If someone is aware of a factor I have not taken into account that might push TMA up in 2008, I sure would like to know what it is, but remember that the analysis above already assumes (a) fully-valued loans, and (b) a prompt and successful resumption of TMA's business.
If TMA recovers decently in 2008, it may yet again be a decent play in 2009 and beyond, although I believe there are (and probably will continue to be) better opportunities in the market (I remain excited about alternative energy as well as oil and gas, although both are probably overbought at current prices).
I think other financials may present a better risk-reward opportunity going forward, although given the events of last month, and the potential for other shoes to drop (a potential we must be aware of now--even if we weren't when I made my recommendation over a month ago), I am not quite ready to go into this space quite yet.
I also have a very busy 60 days ahead of me, and these stocks require several hours of daily attention to be sufficiently informed so that you can move nimbly. Since I won't even have one hour per day to follow my stocks between now and mid-June, I will probably not play too heavy in the market until late June.
Finally, I apologize to all who followed my advice and lost money. All I can say is that my advice was honest (no agendas), well-researched, accurate and based on my 20+ years in the markets. What I did not take into account (and could not have) are the truly unprecedented events that transpired in March.
In retrospect, it seems clear to me that the financial system as we know it got VERY CLOSE to the precipice, and I am incredibly thankful that the Fed did the BSC deal because had it not, I do not believe TMA would even be trading at 20 cents today, and I believe the potential for a major meltdown was quite substantial.
We're certainly not out of the woods yet, and we now know what the potential for disaster can look like, but I am glad we have orderly markets rather than the mayhem we could have had.
Even though I do not own the stock any longer, I will continue to check in here periodically.
Jack Yetiv
If any sudden ("irrational") price recovery does occur, I'd expect panic short-covering to make it dramatic.
Of course I may be all wrong and I would not suggest that anyone else (without my particular risk-reward priorities and readiness to absorb losses) buy Thornburg for the reasons that I did. Even Jack Yetiv has a different risk-reward prioritization than I do do, given his sales of the options and then later the stock. In investments, few people are really "similarly situated" to oneself.
> Just to add a little:
>
> 1)Hedge Funds like Matlin, etc, that specialize in distressed debt
> are, at their core, contrarians. They get active when things are
> the worst (they hope). When everyone else is running away they are
> running towards the fire.
>
> 2) There is so much commentary about the "current value" or book
> value of TMA's holdings. THIS IS JUST A SNAPSHOT.....if their loans
> don't exhibit defaults/deficiencies beyond a certain range then at
> some point, when the markets and economy turn....GUESS WHAT???...those
> values will recover.
>
> 3) If, in fact, Goldstone is right and a large portion of their portfolio
> is "mispriced" because of what is a currently IRRATIONAL environment
> then when those values recover they will have more "equity" in those
> positions as they have paid off some of the debt against those positions
> via margin calls. Sure they are taking on debt to do it but they
> are also getting rid of debt at the same time (paying off margin
> and creating additional equity).
Dulcinea replies:
Many nights I have lost sleep over my investment in TMA, but last night was different. In my anticipation of “Dilution Day”, I woke up in the night, and an alarming thought occurred to me: At the rate everyone else is bailing, and at the rate I am buying, I will be the only one left holding any of the old common shares. If this trend continues, I could end up owning 5.5% of the company all by my lonesome. Maybe I can get a seat on the board right next to Dick (Rainwater) and all the other big investors. Wait a minute, was I really awake or was I just dreaming the impossible dream? It seemed so real, and it was in technicolor! ~ TGIF~
Disclosure: Longer TMA than anybody else
Can someone help a Newbie out?
Did finally look at the April 2nd, 8-k private placement doc and got a clue as to the amount of the first quarter loss TMA will report, a 1.554 B loss.
Just a back-in computation, Equity at yr end was 1.759 plus Jan equity (common & preferred) raised of .201 minus their estimated 3-24 equity, per the report, of .406 equals a 1.554 B loss.
Not that it seems to matter, leverage at 3-24 is 76x, the proforma leverage is around 170x. It seems to me that either new equity comes in or they cease to exist.
Goldstone makes it clear that there are basically two options at this juncture:
FIRST OPTION: “If everybody cooperates,……. THERE IS SIGNIFICANT UPSIDE FOR INVESTORS, based upon where TMA is today, and certainly better than where TMA would have been had the company not raised the new capital.”
SECOND OPTION: “If they DON’T cooperate and participate and if they DON’T authorize and tender what TMA needs to have done, then, in fact, THE RETURNS THAT THEY’RE GOING TO BE ABLE TO EXPERIENCE ARE GOING TO BE GREATLY DIMINSHED OVER TIME."
This sounds plain and simple so why not go along with it? If you are one of the common shareholders who does not approve the vote to increase the authorized number of shares OR if you are one of the preferred stockholders who does not wish to tender your preferred shares… then I ask WHY NOT? I would like to know WHAT IS THE ALTERNATIVE? Some here want to argue against the deal, yet they do not offer a feasible, attractive alternative. So what specifically do those in opposition propose? I would like to hear of such an alternative proposal.
All these accounting figures/calculations being tossed around are indeed impressive, but how reliable is this data? Who knows? I am more inclined to go with what I know for a fact, and in this case the management of Thornburg Mortgage says it needs the cooperation and participation of the shareholders in order to recover and continue its operations. Why on earth would any competent shareholder invested in TMA choose not to support the company in which he/she has invested, especially when the only apparent choice is slim to none?
Why on earth would any competent shareholder invested in TMA choose not to support the company in which he/she has invested, especially when the only OTHER apparent choice is slim to none?
Why are those calculations necessary? The answer is that TMA has remained silent (or generally vague) on the issue. They've displayed more of a CYA legal attitude rather than a real concern with stockholders.
They've lost trust, feel misled and are more likely to be vindictive rather than supportive towards management that today still uses spin like "significant upside, based on todays value (1.20)". While that is certainly true, it is also condescending as well, to those with a much higher basis.
2) If and when the value of "mis-priced assets" recovers, they will own them. the value added will go to them, not original owners of stock, who are called bag-holders by definition
3}If you are really trying to figure out why a penny stock is "holding up" at 1.20, you need new past-time. Its drowning in dilution, and everyone is feeding off the CF originally meant but shareholders.
As for accounting figures, they are only as good as the paper they written on. Books can be cooked, and there are many ways to present a financial statement... lots of angles to consider. That was all I meant when I asked "How reliable are all these figures/calculations being tossed around?"
Thanks for all your hard work. I have read and re-read many of the accounting posts, and they are all well thought out and I am certain well intended. Thanks again for sharing!
On Apr 13 02:25 AM PJ568 wrote:
> Many would consider the accounting data to be more reliable than
> anything management says at this time. The loss computation of 1.554
> B is simple math with information derived from SEC filings made by
> TMA.
>
> Why are those calculations necessary? The answer is that TMA has
> remained silent (or generally vague) on the issue. They've displayed
> more of a CYA legal attitude rather than a real concern with stockholders.
>
>
> They've lost trust, feel misled and are more likely to be vindictive
> rather than supportive towards management that today still uses spin
> like "significant upside, based on todays value (1.20)". While that
> is certainly true, it is also condescending as well, to those with
> a much higher basis.
>