Thornburg Aims to Lure Big Investor, and Survive

Troubled mortgage company changes by-laws to allow ownership of as much as 30 percent of its shares.
Stephen TaubMarch 25, 2008

In a desperate attempt avoid bankruptcy, Thornburg Mortgage Inc. changed its by-laws to allow an investor to own as much as 30 percent of its stock, up to $300 million.

The company said that it designed the step in a way that would not jeopardize its qualification as a real estate investment trust. Until now, voting rights were eliminated for anyone who owned more than 10 percent of the stock. The move also would enable the company to find a large investor.

Indeed, Thornburg also announced that it will initiate a private placement of up to $1.35 billion in senior subordinated secured notes, due 2015. The initial interest rate will be 18 percent, but it will be knocked down to 12 percent if the company meets certain conditions.

Proceeds will be used to raise at least $948 million in new capital by March 27 as part of its 364-day agreement entered into with five of its remaining reverse repurchase agreement counterparties and their affiliates who expect to provide about $5.8 billion of reverse repurchase agreement financing.

Thornburgh said that in return, the counterparties agreed to reduce margin requirements and to suspend their rights to invoke further margin calls. Thornburg will also issue warrants to the investors purchasing senior notes in the private placement.

It warned last week it may seek bankruptcy if it is unable to raise the $948 million.

Investors clearly liked these moves, bidding up its shares by nearly 50 percent in early Tuesday trading.

Under the terms of the private placement, the company is required to seek shareholder approval to amend the company’s charter to increase the number of shares of capital stock the company is authorized to issue.

Earlier this month, the company warned, after restating its 2007 financial statements,that it could go out of business altogether. The restatement expanded its full-year loss to more than $1.5 billion, citing “adverse developments” in the mortgage finance and credit markets since August 2007.