Thornburg Mortgage again extends exchange offer for preferreds

By Angela McDaniels

Tacoma, Wash., Oct. 31 - Thornburg Mortgage, Inc. said it once more extended the exchange offer for its 8% series C cumulative redeemable preferred stock, series D adjusting-rate cumulative redeemable preferreds, 7.5% series E cumulative convertible redeemable preferreds and 10% series F cumulative convertible redeemable preferreds.

The offer and a concurrent consent solicitation will now expire at 5 p.m. ET on Nov. 19 instead of Oct. 31. They began on July 23 and have been extended a number of times.

Holders who tender will receive three shares of common stock for each preferred. Holders were originally slated to receive $5 in cash and 3.5 shares for each preferred, but the offer was amended on Oct. 1.

Normally, the company would need shareholder approval to issue the common stock needed for the offer due to the policies of the New York Stock Exchange. However, the company said any delay caused by first securing shareholder approval would "seriously jeopardize" its financial viability and the exchange offer.

The company has asked the NYSE for approval to use an exception previously granted on April 1, 2008 and has agreed to mail a letter to shareholders notifying them of the plan to issue the shares without their prior approval.

Thornburg must wait at least 10 business days after mailing the letter to issue any common shares in connection with the exchange offer, hence the extension.

'Critical step'

In a Thursday news release, the company said it believes that successfully completing the exchange offer remains a critical step in its plan to resume normalized business operations because the offer will reduce the interest rate on its senior subordinated secured notes due 2015 to 12% from 18%, which will greatly reduce the cash demands on the company.

In addition, the successful completion of the exchange offer will result in the termination of the principal participation agreement, an agreement that provides to each senior subordinated secured noteholder an interest in the then-unpaid principal amount of a specific portfolio of mortgage-backed securities and rights under any repurchase agreements, reverse repurchase agreements, swap agreements, loan agreements and other agreements as well as other consideration.

The termination of this agreement is also integral to the maintenance of the company's real estate investment trust status, which Thornburg said provides for significant tax savings and higher returns to shareholders during profitable periods.

Conditions not met

As previously reported, unless an agreement is reached with the reverse repurchase agreement counterparties that are party to Thornburg's override agreement, the conditions to the exchange offer will not be satisfied because Maryland law prohibits the company from paying the cash portion if, after making the payment, the company would be unable to pay its debts as they become due or the company's assets would be less than its total liabilities.

The company said that since the beginning of the exchange offer, the override agreement counterparties have made a series of unanticipated margin calls and have withheld funds payable to the company, actions that will leave Thornburg's liquidity greatly diminished if they are unresolved.

Thornburg said these actions are in conflict with its understanding of key features of the override agreement, including whether the margin calls are subject to a $350 million cap and whether the liquidity fund established under the override agreement can be used for corporate purposes other than paying margin calls.

On Oct. 1, the company said it had been unable to resolve these issues.

Most preferreds tendered

As of Sept. 30, 93.6% of the 8% preferreds, 94.6% of the adjusting-rate preferreds, 94.9% of the 7½% preferreds and 98.3% of the 10% preferreds had been tendered.

The company needed tenders from holders of at least 66 2/3% of the total liquidation preference of each series of its preferreds.

The consents will allow Thornburg to amend its charter to modify the terms of the preferreds. Holders may not tender their preferreds in the exchange offer without delivering consent.

On Oct. 1, the company said it received the consent of a majority of the participants in the principal participation agreement to extend the deadline by which it must complete the exchange offer to Dec. 31.

Questions can be directed to the company (888 310-7466) or the information agent, Georgeson Inc. (866 399-8748).

Thornburg is a Santa Fe, N.M., lender specializing in jumbo mortgages.

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