ChaulmoograOil

Thornburg's a Huge Bargain After Monday's Crash

I put in my market buy order for Thornburg common when it was trading at around $0.75/share when I (like Jack Yetiv) believed that Thornburg had a 60% or more chance of going bankrupt within a day or two. That didn't bother me, and Thornburg didn't go bankrupt then. I had originally surmised that the (very rich) dominant owners of the common stock would devise some scheme that would protect their prior investment. I still suspect that they have done so and are doing so. Abstract formulation of the supposed "correct" book-value-based share value may turn out to be rather irrelevant to the actual future course of the stock price (as it seemingly has been irrelevant so far).

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.

Let Thornburg's Demise Be a Lesson to You

The many earnest, "helpful", thoughtful and articulate negative postings on this and other Thornburg threads (urging us to sell all our Thornburg shares NOW for our own salvation) suggest to me that some short-sellers are not looking forward to the pleasure of covering their shorts if Thornburg holds its approximate current value for now and then increases "irrationally".

If the irrational stock price increase occurs, the massive short-covering would accelerate it, pushing TMA prices up, and make things even more "irrational" -- except that the price will really have been going up and will thereby have rendered the irrational highly rational, retroactively. Such is "reflexivity" in securities prices (George Soros' theory).

Thornburg's a Huge Bargain After Monday's Crash

What I wonder now is whether two different, opposing "important" factions are buying now at low prices, instead of just one (if any). That is, is there a second group (or single person) who wants to prevent accepting the tender offer and issuance of the new stock, by buying voting control (or enough at least to block the other, bondholder faction's voting control).

Thornburg's a Huge Bargain After Monday's Crash

Jack Yetiv wrote: "... For the record, I have recommended (as have others here) selling calls against the common one holds, and I have so far collected about 40 cents per share in premiums.
Jack"

Everyone has his or her own individual risk-reward approach, and money now versus money later approach. I won't even consider selling calls now, because I want every advantage if TMA becomes an X-bagger. I myself am not interested in picking up a few bucks from selling calls now if it will diminish the glorious benefits of having bought an X-bagger near (alas, in my case it should have be AT) the all-time low. I wanted high risk (OK with me if it had gone to zero) high reward (X-bagger where X is certainly over 4). Thornbug seems saved, the saviors took their pound (or 95 pounds?) of flesh, and now the complicated deal, and my ignorance of the counterparties' real interests and intentions, make Thornburg common stock somewhat diminished risk (now it won't go to or near zero soon), but still potentially high reward. Maybe.

Thornburg's a Huge Bargain After Monday's Crash

An intriguing question now is this: How many of the formal counterparties in the new deal already (directly or indirectly) own large amounts of Thornburg common stock? I agree with Jack Yetiv that this might make a big difference for the future of this deal. I have no way of knowing the answer.

Thornburg's a Huge Bargain After Monday's Crash

Frozen Tundra wrote "Welcome back Jack; skiing is certainly better than watching this saga play out. Welcome back Jack; skiing is certainly better than watching this saga play out."

I imagine that the slopes were not as steep.

Thornburg's a Huge Bargain After Monday's Crash

Voila. Done.

Wow. It's complicated. Near-term price targets for TMA common stock, anyone?

Thornburg's a Huge Bargain After Monday's Crash

P.S. If TMA does go bankrupt soon from all this, it would be interesting to analyze whether all those mark-to-market-value collateral and margin calls, and mutual default triggers, which were intended to PROTECT the lenders, actually has had the opposite effect of losing them a bunch of money. They might get less from foreclosing on the collateral than if they'd never pestered Thornburg in the first place. That would be ironic. Anybody know whether this is so?

Thornburg's a Huge Bargain After Monday's Crash

"Market value", philosophically, is not an exact notion. It's based (at best) on a hypothetical need to sell at the present moment. appraisers have multiple measures of it. It's easy to approximate for stocks and bonds when trade volumes are huge -- but even then it may be a pseudo-objective notion.

I have some bonds. Have I "lost money" because of downward fluctuations in the bond market? Not really, because I hold bonds to maturity, so I don't CARE about supposed mark-to-market-value. It's subjective. (I'm more bothered by the evaporation of the U. S. dollars in which they are denominated.)

And then there's the "Compared with what?" factor. Do I, with some U. S. dollars, "lose money" if we mark-to-market the dollar against the Euro? How about when the dollar declines against the Ghanaian cedi? Have I "lost money"? Only if I have plans to buy things soon in Ghana. Again, "market value" can be pretty subjective and artificial.

What happened with Thornburg was, this artificial mark-to-market notion became infused with "reality" because of the mark-to-market clauses in the repurchase agreements. Imaginary or artificial "market" changes caused real events. In hindsight, of course, had Thornburg and others like them been wiser, they would have negotiated funding without such clauses and built in vulnerabilities.

Thornburg's a Huge Bargain After Monday's Crash

crazee_trader wrote:
...
"Obviously the mortgage portfolio is no longer good or they could sell it as a reasonable price to raise money at this point instead of having this massive dilution."
...

I can't quarrel with the rest of the posting, but this quoted sentence may not be true. Even the excellent mortgage loans and loan-backed securities plummeted along with the bad, during the crunch, so the so-called "value" was down and the mark-to-market problem arose nastily, so I doubt that Thornburg necessarily "could sell at a reasonable price" its assets while everything is still in dramatic suspense and confusion. It may take a while before Thornburg's high-quality loans are again "fairly priced", assuming it survives.

A lot of this "mark to market value" nonsense has to do with the fact that "market price is set at the margin" -- only those assets actually traded determine the "price" of a security, however small a fraction is actually traded or on bid/offer. (That's how 100-share transactions can lower the stock price of IBM, despite the fact that less than one millionth of the capitalization is involved; the effect is more pronounced in lightly-traded securities.)

Thornburg's a Huge Bargain After Monday's Crash

Thornburg's creditor deadline was extended again, to next Monday afternoon, according to a news report on MarketWatch.

Thornburg's a Huge Bargain After Monday's Crash

I consider "stock dividends" to be meaningless, like stock splits. Except that some people really are fooled, and influenced, by them, which influences real prices, so I guess they're not really so meaningless after all, so those people really weren't "fooled" after all, so I was, so .... Ah the joy of "reflexivity" (George Soros's and Family Feud's concept of what other people think, and its effects).

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

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.

Thornburg's a Huge Bargain After Monday's Crash

The mechanical calculations of Thornburg common stock's "theoretical value" post-rescue are beyond my ability (or maybe inclination) to evaluate, but there seems to be no basic adjustment for a "going concern" factor. The prices of the loan assets, the preferred stock, the common stock, etc. had been drastically discounted during the crisis at least partly for fear that Thornburg was unlikely to remain a "going concern". The fear factor. Which ever rescue occurs, with however much dilution is entailed, it seems possible that, as of the next morning, the _business_ of Thornburg could be essentially "as before". That is, as though "nothing had happened" except for portfolio diminutions such as the sales to Bill Gross or Pimco. The ownership will have been diluted, but that is not a matter of the business, just the investors' ownership. It could be mostly the same people working there, same prudent loan criteria, same style of business (but maybe scaled back with less leverage and less funds-source interdependence and fragility).

If some large owners of pre-crisis Thornburg common shares were in fact behind the "rescue", they'd have a pretty big incentive to restore the price of the common shares to high levels.

Once the thing has simmered down and dividends are restored based on realized cash flow, how high will the yield on the common shares be?

This all assumes that the rescue really occurs and things really do simmer down.

Disclosure: I'm still long Thornburg common; twice this week I passed up chances to sell doubling my investment of last week. (Yes, I know, a fool and his money are soon parted...) I can lose it all tomorrow if need be, otherwise if it quadruples I'll probably sell half then and keep the rest for a long time. That's my favorite investment buy/sell pattern in the absence of insights, prescience or any better uses for the money.

Thornburg's a Huge Bargain After Monday's Crash

Looks as though somebody big is stepping in now:
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Filed at 2:27 a.m. ET March 25, 2008
Reuters

NEW YORK (Reuters) - Thornburg Mortgage Inc <TMA.N>, which is scrambling to raise nearly $1 billion this week to avoid bankruptcy, said it has changed its by-laws to allow a single investor to buy up to $300 million of stock.

In a filing late Monday with the U.S. Securities and Exchange Commission, Thornburg said its board of directors last week approved a change to allow such an investment, so long as it would not jeopardize the company's tax-friendly real estate investment trust (REIT) status.

Previously, shareholders were generally limited to a 10 percent ownership stake, Thornburg said.

On March 19, Thornburg announced plans to sell at least $1 billion of subordinated notes paying a 12 percent interest rate and convertible into stock at 75 cents per share.

It said the financing was necessary to ensure that its own lenders would not issue additional margin calls, or demands for cash or collateral, for a year. The Santa Fe, New Mexico-based company said if it did not raise $948 million within seven business days, it might have to seek bankruptcy protection.

Thornburg specializes in "jumbo" adjustable-rate mortgages, which come in amounts of more than $417,000 and typically go to buyers of more expensive homes.

Though such buyers are often good credit risks, many investors stopped buying these mortgages as capital markets tightened. Thornburg earlier this month said it had failed to meet more than $600 million of margin calls.

A REIT may deduct dividends paid to shareholders from its corporate taxable income if it distributes at least 90 percent of the taxable income to shareholders as dividends.

Thornburg shares closed Monday up 14 cents at $1.27, according to New York Stock Exchange data.

(Reporting by Jonathan Stempel; Editing by Quentin Bryar)
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