Capital Markets

More Thorns for Thornburg; Possibly Fatal Ones

The "jumbo" lender restates to widen its 2007 loss, and raises the question of survival.
Stephen TaubMarch 11, 2008

Thornburg Mortgage Inc. restated its 2007 financial statements, expanding its full-year loss to more than $1.5 billion due to “adverse developments” in the mortgage finance and credit markets since August 2007.

The provider of “jumbo” home loans also pointed out in its regulatory filing that it could go out of business altogether.

The restatement and the caution about its future added significant fallout to the subprime crisis. It underscored the significant deterioration of market prices of mortgage-backed securities — certainly for Thornburg, a major home lender. Its revised loss compares with a previously reported $875 million loss.

The company said the restated financial statements reflect changes in losses on adjustable-rate mortgage assets and other related changes.

“On March 5, 2008, the board of directors decided that we should restate these financial statements after concluding that there was substantial doubt as to our ability to continue as a going concern at Dec. 31, 2007,” the company said in its filing.

The reeling company said the revisions also reflect a $248.8 million increase in the impairment charge, previously $427.8 million, that was reported last Friday. The new impairment level of $676.6 million is for the year ended Dec. 31. “The company recognized this additional impairment charge in accordance with generally accepted accounting principles because it may not have the ability to hold certain of its securitized ARM loans to maturity,” it explained.

Thornburg asserted that unrealized losses are not reflective of credit deterioration within its mortgage holdings and that the restatement will not have a material impact on the company’s book value at year-end. “In fact, the reduced carrying value of these assets will now improve the company’s yield going forward and will benefit GAAP income,” it added.

“Similar to many companies impacted by the current crisis in the mortgage finance industry, our immediate challenge is meeting margin calls from our lenders that has been brought on by the dramatic decline in high quality mortgage-backed securities prices,” said Larry Goldstone, president and CEO. “While we aggressively pursue more permanent solutions to our liquidity issues, we are in discussions with our lenders to reach a mutually satisfactory agreement that will enable us to meet all of our outstanding margin calls within an acceptable timeframe for our lenders and also mitigate the sale of high-quality assets at a significant loss in this environment.”

Meanwhile, Carlyle Capital said lenders have now liquidated a total of $5.7 billion in collateral. Private equity firm Carlyle Group’s London-based unit, a mortgage bond fund traded on the Amsterdam exchange, had received margin calls last week from 7 of its 13 repo counterparties, totaling more than $37 million.