Thornburg Sells $1.35 Billion of its Debt

The sale at least temporarily ends a run of margin calls and saves the company from bankruptcy.
By Debra Borchardt ,

Updated from 12:50 p.m. EDT

Thornburg Mortgage

(TMA)

breathed a sigh of relief Tuesday, as the lender managed to complete a sale of $1.35 billion in debt that saves the company from bankruptcy.

The sale of the senior subordinated secured notes helped stave off creditors to the jumbo mortgage specialist, who had suspended a run of margin calls to give the company a chance to shore up its capital base. Several debt plans were devised and shelved as investors tasted but investors didn't bite. In the latest, successful version, Thornburg gets $1.15 billion right off the bat and the remaining $200 million goes into escrow and will delivered upon the completion of a preferred stock deal. The deal is dependent on shareholder approval.

Those involved in crafting the complicated agreement characterized it as "having many moving parts." The note holders rake in a whopping 18%, which will be adjusted to 12% once the shareholders approve an increase in the number of shares that can be issued and the completion of the preferred stock portion.

These investors have also entered into a seven-year principal participation agreement, allowing them to get monthly payments that the company receives as principal payments on the portfolio of mortgage securities. The preferred stock portion requires the lender to conduct a tender offer of the outstanding preferred and has suspended dividend payments on all the outstanding preferred stock.

The proceeds from the deal will allow Thornburg to pay off the margin calls it had struggled with from its counterparties and that had threatened the very existence of the company. The margin calls first began back in August and then escalated in March. It was unable to meet those calls, which prompted the furious race to raise capital.

The Santa Fe-based lender is known for specializing in mortgages over $400,000 and until recently was one of the largest that provided loans on expensive homes.

Fannie Mae

(FNM)

and

Freddie Mac

(FRE)

are now able to purchase loans for homes between $700,000 and $800,000 in some locations.

Thornburg shares were climbing 15.7% Wednesday afternoon to $1.40.

Know What You Own

: TMA operates in the mortgage industry and some of the other stocks in its field include

Countrywide

(CFC)

,

Wells Fargo

(WFC) - Get Report

,

Bank of America

(BAC) - Get Report

and

Washington Mutual

(WM) - Get Report

. These stocks were recently trading at ($5.95, +8.18%), ($30.88, +6.12%), ($40.25, +6.17%) and ($11.08, +7.57%) respectively. For more on the value of knowing what you own, visit TheStreet.com's

Investing A-to-Z

section.

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