If Thornburg Gets Its Funding, I'll Take Preferred Over Equity

Thornburg Mortgage (TMA) has changed their bylaws to allow large shareholders. It seems that CEO Larry Goldstone is really going to save this company. I admire him for being honest about the condition of the company and its margin calls back when the whole mortgage market started to melt down. I'm willing to make a speculative bet that he will be able to keep Thornburg Mortgage solvent but at a very dear costs to equity holders.

But just in case, I'd rather buy the preferred stock (TMA_PRC - $4.59, TMA_PRD - $4.55). I'm assuming preferred would still have some value in a liquidation. If there is no liquidation and the company is saved they could return shooting distance ($19.00ish) of the par value of $25

Cramer pleads for "someone to go bankrupt already" and puts Thornburg down as a hopeful. He may be right but I like the risk/reward trade off on this highly speculative trade. Rob Chrisman from the Mortgage News Clips shows what might be in store for Thornburg employees should the company go away.

Disclosure: I own TMA_PRC and TMA_PRD. My average cost in both is around $10.00 so clearly my confidence started earlier than today and was wrong. I bought more TMA Preferred D today. I do not own TMA common, though I might buy some for a quick speculation. I have traded TMA both long and short in the past year. Any investment in Thornburg Mortgage should be treated as highly speculative. Do not risk money you cannot afford to lose.

Definition of Speculative: You might lose everything you put in. Only play with a small amount that you can easily afford to lose and that won't impact your life if you do.

Comments

[someguy]

Thornburg Investment Management and Thornburg Mortgage are two separate entities. Larry Goldstone is the CEO of Thornburg Mortgage.

[outtamojo]

You bought in spite of the dividend suspension and the tender offer of 5/share for all outstanding preferred? Am I reading it right????

[jimmy46]

If the company goes bankrupt, the pf will be worth nothing,
zero, nada.

[Voice of Reason]

While for sure speculative, I feel the gamble is worthwhile IF the underlying assets ARE as claimed, and I suspect most are. I see mostly panic in all the financials with people making the same mistake over and over, selling low, and buying high. That's half-ass backwards. You make the real money in the stock market by taking risk. How much of course depends on your pain tolerance and how much you can afford to lose if you're wrong

[jimmy46]

The company has suspended the pf dividends.
When a stock goes down, cut your losses,
you're just losing more by hanging on.

[oldie383]

I figure You are guilty of wishful thinking. You removed yourself from the financial arena so now your perspective is lessened not enhanced. The inside scoop on this company is known only by the insiders and I figure I have a good guess.

[David Neubert]

Ouch. Wrote and traded this before the deal announcement came out. Clearly the upside to the preferred is severely limited at this point.

[Voice of Reason]

I'm a glass is half full guy. I also love 'the sky is falling' amateurs. Almost everytime they panic... I make a killing. Thanks! Example, recently while everyone holding E-Trade what tripping over each other to head for the exits, I double downed and now I'm showing a nice profit.

Yes, of course Thornburg could go down in flames. Operative word; MAY. That's why it is a very speculative trade. Again, if such a holding is a small percentage of your total, then often the risk of being speculative pays handsome rewards. In other words if something very speculative like Thornburg represents 1-2% of your total holding, you should be abe to afford it going belly up on the risk it could double or triple in value over the next 9 to 18 months. You can and should protect yourself with Puts, Limit stop orders to limit your risk.

[Paper Doll :(]

Is TMA in a state of limbo right now? Are they coming OR going? What's the deal???

[James Davis]

I figured you hadn't seen the 20 cents on the dollar scam they are pulling in the preferred. I guess thats why they make the big bucks, they know how to steal from the public.

[ChaulmoograOil]

I don't see the merit of the preferred as opposed to the common stock. I'm looking for high risk and high reward here. If Thornburg goes bankrupt, neither kind of Thornburg stock will be worth much. But if not, the upside of the common stock (in long-term potential percentage increase if all goes well) seems better than that of the preferred, even after flood-like dilution. I don't see how to quadruple an investment in the preferred stock. I don't see Thornburg going "almost bankrupt" such that the seniority of the preferred stock gives it survival while the common stock becomes worthless.

[SHartwell]

First, given the no news and approaching deadline, the likelihood of bankruptcy has risen substantially today (in my view). This makes me very leery of the prefs.

I think owning the common at this price is nuts.

Even if the deal goes through, the common will (again in my view) get killed. There are 172 million shares outstanding. The new noteholders get warrants equal to 90% of the common shares. This means 1.548 billion (that's BILLION) new shares at $0.01 each.

Post this issue, and assuming that the balance sheet recovers to end-07 levels (there's currently a $1.5 billion hole on the repos), this still leaves a book value on the common of $0.55. So even assuming the deal goes through, your still paying nearly 3 times a "I hope it gets back there" book value.

Finally, IF the deal goes through, what's the first thing a warrant holder is going to do? Short the common to lock in the profit! (They can't legally do this before the deal.) With warrents equaling 9x the number of ordinary shares outstanding, i don't want to stand in front of that train.

[vicious]

I think this analyst is trying to get people to by Thornberg so that he can recoup his losses, so be careful! I can't see how anyone would buy this company; it is a sure loser

[LFlorence]

Is it fair to say that you are no longer recommending the preferreds? Why did you recommend the C' and the D's and not the F's. My understanding is that only the F's have a conversion feature?

[Voice of Reason]

Thornburg right now is a highly spectulative trade. It isn't for the faint of heart. If you're long and have a strong stomach and can wait for 9 months or so I still see the common as a good gamble. I recently doubled down and right now less than a dollar away from break even.

I did the same thing with E-Trade several months ago and already are in the green.