User 174636

Don't Count on a Fast Turnaround for Thornburg Mortgage

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TMA - THORNBURG MORTGAGE INC
SEC Form DEFA14A Period: MAY. 12. 08

What happens if shareholders VOTE AGAINST and do not approve the amendment to our charter to increase the number of authorized shares of capital stock?

There will be several significant adverse consequences for us and our shareholders if the proposal to amend our charter to increase the number of authorized shares of capital stock is not approved.

First, if the charter amendment is not approved, the interest rate on our senior subordinated secured notes due 2015 will remain at 18% per annum, instead of being reduced to 12%. This means that we will make additional annual interest payments of approximately $69 million to the holders of those notes until the notes are repaid.

Second, our new investors under the Principal Participation Agreement will be entitled to 100% of the principal payments on a significant portfolio of mortgage-backed securities generally commencing on March 19, 2009 through March 31, 2015. The investors in the Principal Participation Agreement would also be entitled to a payment on March 31, 2015 equal to the fair market value of the mortgage-backed securities subject to the reverse repurchase agreements in excess of any financing related to those assets. Additionally, any future appreciation in the fair market value of these assets would be recovered by investors in the Principal Participation Agreement, as opposed to being recovered by Thornburg Mortgage for the benefit of our shareholders. This will make it difficult for us to resume normalized business operations.

Third, we will not be able to issue additional senior subordinated secured notes in exchange for the $200 million of escrowed funds as described above.

Does Thornburg Mortgage intend to issue all 3.5 billion of additional shares it’s asking shareholders to authorize?

No. If the proposal to amend our charter to increase the number of authorized shares of capital stock is approved, of the 3.5 billion additional shares of capital stock being authorized, approximately 2.7 billion will immediately be reserved for issuance upon exercise of warrants we have agreed to issue to investors in the financing transaction and for use in the tender offer. The common stock underlying the warrants that have been and are anticipated to be issued in connection with the financing transaction, the shares of common stock anticipated to be issued in the tender offer and the common stock underlying the warrants issued to the counterparties to the Override Agreement, will represent approximately 94.5% of our common stock on a fully diluted basis. The approximately 800 million remaining authorized shares may be issued at the discretion of the Board of Directors, without further shareholder approval, for various purposes, including (without limitation) raising capital and providing incentives to employees, officers, directors and other persons expected to provide significant services to us.

Did the Board of Directors consider alternatives to the financing transaction?

Yes, the Board of Directors unanimously approved the proposal you are voting on only after thoroughly considering the reasonably available alternatives. On March 19, 2008, we initiated a public offering of $1 billion in convertible senior subordinated notes. However, that proposed offering failed to attract enough investor interest to satisfy the capital-raising condition of the Override Agreement, and our management team and Board of Directors continued to explore reasonably available options to preserve shareholder value, including, but not limited to, asset liquidation, the sale of Thornburg Mortgage to a third party, and even filing for bankruptcy, which would have triggered an immediate default under our reverse repurchase agreements and likely resulted in no recovery for our common and preferred shareholders.

For the good of our shareholders and the viability of Thornburg Mortgage going forward, the Board of Directors determined that the financing transaction with MatlinPatterson and the other investors, which included the proposed amendment to our charter, represented the best alternative reasonably available to us and our shareholders.

Don't Count on a Fast Turnaround for Thornburg Mortgage

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TMA - THORNBURG MORTGAGE INC
SEC Form DEFA14A Period: MAY. 12. 08

Thornburg Mortgage’s situation

Why did the industry fall on such hard times?

The mortgage industry is facing some of its most difficult years in the history of the industry. Residential real estate values have declined significantly throughout the United States and defaults and foreclosures are reaching historic highs. Due to fears in the marketplace and demands of lenders, Thornburg Mortgage – and much of the mortgage industry – was faced with and continues to face sudden and severe liquidity problems stemming from large volumes of margin calls on mortgage-backed securities -from our lenders.

How is Thornburg still in business?

Beginning on February 14, 2008, mortgage-backed securities prices once again declined significantly, and there was a deterioration in the liquidity and market prices for high quality mortgage-backed securities in our portfolio. This made it difficult for us to obtain financing, and, as a result of these declining prices, we were also subject to margin calls and margin increases on our collateralized financings. From December 31, 2007 through March 6, 2008, we received $1.8 billion in margin calls, of which approximately $907 million occurred after February 14, 2008. While we were able to meet margin calls of $1.2 billion, on March 6, 2008, we were unable to meet $610 million of remaining margin calls. Despite negotiations with our reverse repurchase agreement counterparties during the first two weeks of March, by March 12, 2008, we had received notices of events of default from five different reverse repurchase agreement counterparties, on an aggregate amount of $1.8 billion in outstanding obligations to these counterparties. We were able to negotiate with our reverse repurchase agreement and auction swap agreement lenders to secure a 364-day reprieve from margin calls and a reduction of margin requirements. This agreement required us to raise at least $1 billion in capital in a very short period of time. We were able to raise $1.35 billion in financing from MatlinPatterson and 49 other investors that helped maintain our ability to stay afloat.

Is Thornburg Mortgage out of trouble?

No. We are still navigating through these tough times, and, the financing transaction with MatlinPatterson and the other investors included conditions that we must meet in order for us to be put in a position to resume normalized business operations. Approval of the proposals in the proxy is necessary to meet some of those conditions and approval will help us rebuild our core business: originating and securitizing loans. We still have a lot to do, but these proxy issues are a priority. Your vote is very important for the future of Thornburg Mortgage.

Wouldn’t bankruptcy be a better option?

The Board of Directors considered other alternatives, including financing certain unencumbered assets, publicly offering for sale preferred stock and convertible debt, declaring bankruptcy, liquidating all of our assets and selling ourselves to another company, but determined that each of these alternatives was unavailable, insufficient to pay all margin calls and provide sufficient reserves to cover additional margin calls, insufficient to meet the terms of the Override Agreement or even more dilutive to shareholders than completion of the recent financing transaction.

In addition, given the terms and conditions of the standard reverse repurchase agreement contracts and the fact that certain provisions of U.S. bankruptcy law do not offer protection with respect to these agreements, the Board determined that existing shareholders were likely to receive nothing if we were to declare bankruptcy.

Let Thornburg's Demise Be a Lesson to You

Many people posting here have expressed their concerns, hurt, anger/resentment of the company and management of Thornburg Mortgage. I would like to encourage those shareholders of TMA to voice your concerns to the company. The company NEEDS to hear from you, the shareholders. As an example, I have posted my most recent email to the company below. Please feel free to follow suit as you might just make a difference. You do have a voice! You can send an email or place a phone call to the company’s INVESTOR RELATIONS:
EMAIL: ir@thornburgmortgage.c...
PHONE: [phone]


I have been attempting to obtain accurate, current investor information from your web site, and I have been unable to achieve satisfactory results. Your investor relations portion of your web site seems to be lacking in the type of info that shareholders need, in particularly now and due to the current dire financial straits Thornburg Mortgage has fallen victim to. For instance, your Calendar of Events link only provides data for the year 2006. I can not determine when your next quarterly report will be issued nor when your next shareholder meeting will be held so that I might gain more reliable info. It is frustrating to say the least, especially when I currently own shares of your rapidly diluting common stock. I tried calling your company office, and I my call was forwarded to someone named Bryan/Brian… I left a voicemail, but my call was never returned. Your company does not give the appearance of caring or catering to the needs of the old loyal shareholders. Many small investors I have spoken with are hurt and angry by this fact. It is for this reason alone that I would seriously consider selling my shares of TMA if I were not at risk of loosing a sizable fortune. Therefore, I must ask, do you folks care at all about your old shareholders? The talk on the street is that TMA management cares only about themselves and that you are selling your old shareholders out. I do not want to believe this rumor, but it is hard to dispute at this juncture. Rather, I want to trust and believe in the company of Thornburg Mortgage as I am now left holding only a meager portion of it chiefly in light of the impending dilution. Any suggestions for a very concerned shareholder would be appreciated. AND please do not resort to your standard form-letter response... I believe I deserve better than that.

Is Thornburg Mortgage Common Really Worth $3.88B?

Many people posting here have expressed their concerns, hurt, anger/resentment of the company and management of Thornburg Mortgage. I would like to encourage those shareholders of TMA to voice your concerns to the company. The company NEEDS to hear from you, the shareholders. As an example, I have posted my most recent email to the company below. Please feel free to follow suit as you might just make a difference. You do have a voice! You can send an email or place a phone call to the company’s INVESTOR RELATIONS:
EMAIL: ir@thornburgmortgage.c...
PHONE: [phone]

My Email to Thornburg Mortgage:
I have been attempting to obtain accurate, current investor information from your web site, and I have been unable to achieve satisfactory results. Your investor relations portion of your web site seems to be lacking in the type of info that shareholders need, in particularly now and due to the current dire financial straits Thornburg Mortgage has fallen victim to. For instance, your Calendar of Events link only provides data for the year 2006. I can not determine when your next quarterly report will be issued nor when your next shareholder meeting will be held so that I might gain more reliable info. It is frustrating to say the least, especially when I currently own shares of your rapidly diluting common stock. I tried calling your company office, and I my call was forwarded to someone named Bryan/Brian… I left a voicemail, but my call was never returned. Your company does not give the appearance of caring or catering to the needs of the old loyal shareholders. Many small investors I have spoken with are hurt and angry by this fact. It is for this reason alone that I would seriously consider selling my shares of TMA if I were not at risk of loosing a sizable fortune. Therefore, I must ask, do you folks care at all about your old shareholders? The talk on the street is that TMA management cares only about themselves and that you are selling your old shareholders out. I do not want to believe this rumor, but it is hard to dispute at this juncture. Rather, I want to trust and believe in the company of Thornburg Mortgage as I now own a meager portion of it chiefly in light of the impending dilution. Any suggestions for a very concerned shareholder would be appreciated. AND please do not resort to your standard form-letter response... I believe I deserve better than that.

Why I am Selling Thornburg Mortgage

Many people posting here have expressed their concerns, anger/resentment of the company Thornburg Mortgage. I would like to encourage those shareholders of TMA to voice your concerns to the company. The company NEEDS to hear from you, the shareholders. As an example, I have posted my most recent email to the company below. Please feel free to follow suit as you might just make a difference. You do have a voice! You can send an email or place a phone call to the company’s INVESTOR RELATIONS:

EMAIL: ir@thornburgmortgage.c...
PHONE: [phone]

My Email to Thornburg Mortgage:
I have been attempting to obtain accurate, current investor information from your web site, and I have been unable to achieve satisfactory results. Your investor relations portion of your web site seems to be lacking in the type of info that shareholders need, in particularly now and due to the current dire financial straits Thornburg Mortgage has fallen victim to. For instance, your Calendar of Events link only provides data for the year 2006. I can not determine when your next quarterly report will be issued nor when your next shareholder meeting will be held so that I might gain more reliable info. It is frustrating to say the least, especially when I currently own shares of your rapidly diluting common stock. I tried calling your company office, and I my call was forwarded to someone named Bryan/Brian… I left a voicemail, but my call was never returned. Your company does not give the appearance of caring or catering to the needs of the old loyal shareholders. Many small investors I have spoken with are hurt and angry by this fact. It is for this reason alone that I would seriously consider selling my shares of TMA if I were not at risk of loosing a sizable fortune. Therefore, I must ask, do you folks care at all about your old shareholders? The talk on the street is that TMA management cares only about themselves and that you are selling your old shareholders out. I do not want to believe this rumor, but it is hard to dispute at this juncture. I want to trust and believe in the company of Thornburg Mortgage as I do own a meager portion of it. Any suggestions for a very concerned shareholder would be appreciated. AND please do not resort to your standard form-letter response... I believe I deserve better than that.

Why I am Selling Thornburg Mortgage

Jackooo:
What do you think President Bush has done for the economy?


On Apr 12 09:55 PM jackooo wrote:

> ridedan2, Fraley1
> Bush is to blame? What an idiot remark. Pull yourself up by your
> bootstraps and except your blundering.

Let Thornburg's Demise Be a Lesson to You

I read the Goldstone interview posted here. I have also read all the many posts on the boards of the “TMA Forum” that are now advocating dumping shares of TMA because of the dilution that was scheduled to begin on Friday, April 11th when Rainwater among others presumably begins converting warrants to common shares. What I do not entirely understand is why so many shareholders are voicing vehement opposition to this deal (some even disapproving the vote to increase the authorized number of shares). Why are these individuals doubting management's motives when it seems pretty “cut and dried”?

In his interview, 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."

The means to TMA’s survival appears to be quite 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 want to argue against the deal, yet they do not offer a feasible, attractive alternative. So what, specifically, does the opposition propose? I would like to hear of any decent, viable alternative proposal that TMA management might opt for.

All the accounting figures/calculations being tossed around are indeed impressive yet mind-boggling. 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 OTHER apparent choice is merely a chance of slim to none?

Is Thornburg Mortgage Common Really Worth $3.88B?

I read the Goldstone interview posted here. I have also read all the many posts on the boards of the “TMA Forum” that are now advocating dumping shares of TMA because of the dilution that was scheduled to begin on Friday, April 11th when Rainwater among others presumably begins converting warrants to common shares. What I do not entirely understand is why so many shareholders are voicing vehement opposition to this deal (some even disapproving the vote to increase the authorized number of shares). Why are these individuals doubting management's motives when it seems pretty “cut and dried”?

In his interview, 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."

The means to TMA’s survival appears to be quite 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 want to argue against the deal, yet they do not offer a feasible, attractive alternative. So what, specifically, does the opposition propose? I would like to hear of any decent, viable alternative proposal that TMA management might opt for.

All the accounting figures/calculations being tossed around are indeed impressive yet mind-boggling. 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 OTHER apparent choice is merely a chance of slim to none?

Why I am Selling Thornburg Mortgage

I read the Goldstone interview posted here. I have also read all the many posts that are now advocating dumping shares of TMA because of the dilution that was scheduled to begin on Friday, April 11th when Rainwater among others presumably begins converting warrants to common shares. What I do not entirely understand is why so many shareholders are voicing vehement opposition to this deal (some even disapproving the vote to increase the authorized number of shares). Why are these individuals doubting management's motives when it seems pretty “cut and dried”?

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 OTHER apparent choice is slim to none?

Thornburg's a Huge Bargain After Monday's Crash

Please excuse the typo... my last sentence should have read:

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?

Thornburg's a Huge Bargain After Monday's Crash

I read the Goldstone interview posted here, and I reviewed what distressbuyer posted earlier regarding the same interview (see distress buyer post on April 7th). I have also read all the many posts that are now advocating dumping shares of TMA because of the dilution that was scheduled to begin on Friday, April 11th when Rainwater among others presumably begins converting warrants to common shares. What I do not entirely understand is why so many shareholders are voicing vehement opposition to this deal (some even disapproving the vote to increase the authorized number of shares). Why are these individuals doubting management's motives when it seems pretty “cut and dried”?

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?

Is Thornburg Mortgage Common Really Worth $3.88B?

Thornburg to Lead in Big Home Loans, Goldstone Says (Update1)

By David Mildenberg

April 3 (Bloomberg) -- Thornburg Mortgage Inc., the mortgage company that averted bankruptcy this week, expects to rebound as a leading lender to borrowers of high-priced homes because of backing from its new investors.

``The opportunity to get a jumbo mortgage loan is fairly limited,'' Chief Executive Officer Larry Goldstone said in an interview today, referring to loans of more than $417,000. ``There is minimal to no competition.''

The collapse of mortgage markets left Santa Fe, New Mexico- based Thornburg needing almost $1 billion to meet lenders' margin calls and to avoid bankruptcy. While the company was saved in a $1.35 billion refinancing, the agreement gives the new investors as much as a 94.5 percent stake and an 18 percent initial yield on notes.

``If we were to attract capital, the terms needed to be highly protective of the investors' interests going forward,'' Goldstone said. ``A lot of money has been lost even by investors who thought they were getting in at the bottom in the last six months.''

The new investors include MatlinPatterson Global Opportunities Partners III L.P. and Richard Rainwater, former chairman of Crescent Real Estate Equities Co., according to regulatory filings. Rights permitting new investors to demand changes in operations and replace directors won't preclude his work, said Goldstone, who declined to name other parties who committed capital.

Greater Risks

``Their incentive and their motivation is to try to allow the company to return to some sort of normalcy,'' he said. ``They are looking for much greater than market-based returns because they are taking much greater than market-based risks.''

Thornburg gained 1 cent to $1.30 at 4:15 p.m. in New York Stock Exchange composite trading. The lender has declined 95 percent in the past 12 months.

Thornburg specialized in jumbo loans, which were typically used to buy more expensive homes by people with strong credit. The company will focus particularly on ``super-jumbo'' loans, Goldstone said. Those loans usually are $650,000 or more.

The declining value of Thornburg's holdings triggered margin calls from lenders including Bear Stearns Cos., Citigroup Inc., and Credit Suisse Group. A margin call means a borrower must pledge additional collateral or cash against the outstanding loan.

Five of Thornburg's 10 directors will be replaced with nominees designated by ``certain investors,'' the company said on April 1. It's not clear when those changes will be made, Goldstone said.

To contact the reporter on this story: David Mildenberg in Charlotte, North Carolina at dmildenberg@bloomberg....

Let Thornburg's Demise Be a Lesson to You

Thornburg to Lead in Big Home Loans, Goldstone Says (Update1)

By David Mildenberg

www.bloomberg.com/apps...

The new investors include MatlinPatterson Global Opportunities Partners III L.P. and Richard Rainwater, former chairman of Crescent Real Estate Equities Co., according to regulatory filings. Rights permitting new investors to demand changes in operations and replace directors won't preclude his work, said Goldstone, who declined to name other parties who committed capital.

Greater Risks

``Their incentive and their motivation is to try to allow the company to return to some sort of normalcy,'' he said. ``They are looking for much greater than market-based returns because they are taking much greater than market-based risks.''

Five of Thornburg's 10 directors will be replaced with nominees designated by ``certain investors,'' the company said on April 1. It's not clear when those changes will be made, Goldstone said.

To contact the reporter on this story: David Mildenberg in Charlotte, North Carolina at dmildenberg@bloomberg....

Let Thornburg's Demise Be a Lesson to You

THE FOLLOWING IS A TRANSCRIPT OF AN INTERVIEW WITH LARRY A. GOLDSTONE, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THORNBURG MORTGAGE, INC. FROM APRIL 4, 2008.

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



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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.





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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.



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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



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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.

Is Thornburg Mortgage Common Really Worth $3.88B?

THE FOLLOWING IS A TRANSCRIPT OF AN INTERVIEW WITH LARRY A. GOLDSTONE, PRESIDENT AND CHIEF EXECUTIVE OFFICER OF THORNBURG MORTGAGE, INC. FROM APRIL 4, 2008.

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



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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.





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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.



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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.