Thornburg to Restate, Notes Going Concern Doubts

Teetering lender Thornburg Mortgage (TMA) will have to restate its results for 2007 and said a spate of margin calls have raised substantial doubt about its ability to continue as a going concern.

Thornburg said its auditor, KPMG, stated that the company's consolidated financial statements for the past two years should no longer be relied upon. The restatement will include a $427.8 million charge to Thornburg's 2007 earnings because of the decline in value of some of its mortgage-backed assets.

Shares of Thornburg were recently tumbling 25% to $1.24. The stock has plunged more than 80% since its close at $8.90 last Friday amid building concern about the margin calls Thornburg hasn't been able to reconcile.

The company said "difficult market conditions that have resulted in a significant deterioration of prices of mortgage-backed collateral, combined with a liquidity position under unprecedented pressure from increased margin calls by its reverse repurchase agreement lenders, a portion of which the company has been unable to meet, have raised substantial doubt about the company's ability to continue as a going concern."

Thornburg President and CEO Larry Goldstone noted in a statement that companies are required to value their asset portfolios at the price they could be sold in the market as of the date of a given financial statement. Accounting rules say that a loss in the income statement must be recognized if the assets can't be held until their value is recovered, even if there's no intention of selling the portfolio.

"The mortgage financing market's complete inability to differentiate and appropriately value superior AAA-/AA-rated mortgage securities from all other mortgage assets is as unprecedented as it is frustrating," Goldstone said. "Our portfolio of mortgage-backed securities has exhibited exceptional credit performance and comprises loans that are among the most solid in the industry. Quite simply, the panic that has gripped the mortgage financing market is irrational and has no basis in investment reality."

The company had available liquidity of about $580 million as of Dec. 31. Through March 6, it had received $1.777 billion in margin calls since the end of last year, and it had satisfied $1.167 billion of the total. The rest, $610 million, "significantly exceeded its available liquidity at that date."

Thornburg has reached a temporary agreement with its remaining reverse repurchase agreement counterparties to freeze additional margin calls through Friday. The pact can be renewed if Thornburg and its lenders can come to terms. Thus far, the company has received default notices from four different lenders.

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