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UBS Upgrades Thornburg

It sees bankruptcy as a low-risk event.
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UBS upgraded

Thornburg Mortgage


to buy from neutral, saying the struggling mortgage lender may have endured the worst of its problems and that bankruptcy appears to be a low risk.

The upgrade comes just a day before the Santa Fe, N.M., maker of jumbo loans is due to update investors on its midquarter status. The company has seen its shares fall sharply along with those of rivals like

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as the market for mortgage-backed securities has collapsed under the weight of rising defaults and delinquencies on recent-vintage loans.

Lenders like Thornburg and Countrywide have had to move away from their practice of originating loans and then selling them in the secondary market, but the transition has been anything but smooth. Thornburg sold a third of its mortgage portfolio at a loss last month as the company sought to raise money to ease its dependence on warehouse credit lines and reduce its exposure to margin calls. The company later paid out its dividend after delaying that decision for a month to ensure its liquidity.

UBS said Thornburg is poised to benefit as the Fed moves toward reducing its fed funds overnight lending interest rate target.