Thornburg faces limited liquidity to meet new margin calls, looking to sell securities or raise capital

By Caroline Salls

Pittsburgh, March 3 - Thornburg Mortgage, Inc. said it has limited liquidity available to meet current and future margin calls, prompting a threat of defaults and liquidation of pledged securities that would occur if the company is unable to sell portfolio securities or raise additional debt or equity capital, according to a company news release.

Thornburg said repurchase agreement defaults or liquidation of pledged securities would jeopardize its ability to continue its business.

"The turmoil in the mortgage financing market that began last summer continues to be exacerbated by the mark-to-market accounting rules which are forcing companies to take unrealized write-downs on assets they have no intention of selling," president and chief executive officer Larry Goldstone said in the release.

"In this environment, the current market price of assets has become disconnected from their underlying recoverable value, resulting in increased volatility and imprecise quarter-to-quarter comparisons of asset valuations.

"We believe that this latest downturn in the mortgage finance market was brought on by a continued lack of trust and confidence in the broader financial markets and has resulted in a substantial excess of sellers versus buyers of high quality mortgage securities."

Since the filing of its 10-K annual report on Feb. 28, Thornburg said it has received $270 million in margin calls on its reverse repurchase agreement borrowings outstanding as of Feb. 29.

Although Thornburg said it has not met a majority of these most recent margin calls, the company said it is working to meet the outstanding margin calls by either selling the portfolio securities or raising capital.

Thornburg said it is already in default with one reverse repurchase agreement counterparty and is working with that lender to repay the debt.

The company said the lender has not yet exercised its right to liquidate pledged collateral.

According to the release, Thornburg had met more than $300 million in margin calls on its reverse repurchase agreements leading up to Feb. 27, leaving it with limited liquidity to meet the new margin calls.

The company said the most recent margin calls are strictly the result of continued deterioration of prices of mortgage-backed securities precipitated by difficult market conditions, but are not a reflection of the credit performance or long-term realizable value of Thornburg's portfolio.

Meanwhile, Thornburg said a substantial majority of the margin calls it met as of Feb. 27 were related to the decline in valuations on its super senior mortgage securities backed by Alt-A mortgage loans, triggered by a continued excess supply of similar types of securities into the market.

After meeting all of its margin calls as of Feb. 27, Thornburg said it saw further continued deterioration in the market prices of its high-quality, primarily AAA-rated mortgage securities, which triggered additional margin calls.

"Although this is a difficult time for the company, we are working diligently to satisfy all of our lenders as soon as possible and return to financial stability," the company said in a statement. "These difficult market conditions have also created increased profit opportunities as lower-priced mortgage assets will translate into wider mortgage spreads and improved portfolio margins going forward.

"We remain committed to manage through these challenging and volatile markets and remain focused on building long-term value for shareholders."

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

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