Thornburg Offers $1.35 Billion of Debt Paying 18%

Thornburg Offers $1.35 Billion of Debt Paying 18%

March 25 (Bloomberg) -- Thornburg Mortgage Inc., the ``jumbo'' mortgage lender trying to stave off bankruptcy, rose by more than half after disclosing plans to raise $1.35 billion.

The rescue plan gives new investors debt that pays 18 percent and the chance to own a 90 percent stake, according to terms of the private placement outlined by Santa Fe, New Mexico-based Thornburg in a statement today. Thornburg is asking the New York Stock Exchange for permission to issue new securities without a shareholder vote because delay ``would seriously jeopardize the financial viability of the company.''

Thornburg needs to raise almost $1 billion this week to meet margin calls from its bankers. The lender had tumbled 95 percent in 12 months as managers struggled to raise funds amid the worst housing market in a quarter of a century. With the deadline looming, Thornburg had to accept an interest rate about four percentage points higher than the lowest-rated companies.

``Thornburg has a tight time window and you have to take measures you normally wouldn't employ,'' said Keith Gumbinger, vice president of HSH Associates, a mortgage industry research firm in Pompton Plains, New Jersey. ``An 18 percent yield attracts instant attention.''

The lender gained 44 cents, or 35 percent, to $1.71 at 11:31 a.m. in New York trading and sold for as much as $1.94. Thornburg stock fetched more than $28 last June.

New Investors

MaitlinPatterson Global Opportunities Partners III agreed to buy $450 million of the notes, Thornburg said in a separate filing today. Mark Patterson, chairman and co-founder of the company that invests in bankrupt and distressed companies, said in an interview that current prices on distressed debt makes this a ``great buying time at low values.''

The sale includes senior subordinated secured notes due to mature in 2015. Terms call for an initial interest rate of 18 percent, falling to 12 percent later if certain conditions are met. The investors also get warrants to buy common stock for a penny a share.

In return, five lenders agreed to provide about $5.8 billion of financing, curtail their margin requirements and suspend further margin calls, the statement said.

Thornburg must pay a termination fee of $18 million plus expenses if definitive documents aren't signed by March 27.

Thornburg agreed to suspend preferred dividends, following an earlier decision to cancel the payout on the common stock. The accord includes a tender offer for at least 90 percent of the preferred stock, priced at $5 per $25 of liquidation value plus warrants equal to 5 percent of the lender's common shares.

The latter could reduce the stake of the new investors to 85 percent.

Mortgage Collateral

As part of the agreement, MaitlinPatterson is paying $100 million to Thornburg in return for payments starting in April 2009 tied to the company's mortgage holdings, according to the filing.

Today's transaction replaces the sale of 12 percent convertible notes announced earlier this month, Thornburg said.

MBIA Inc., the largest bond insurer, had to pay 14 percent to raise $1 billion in January to bolster its capital.

Thornburg has run short on cash as falling home sales cut into demand and fixed-income investors, burned by losses on investments linked to subprime home loans, avoided the company's securities. The declining value of Thornburg's holdings triggered margin calls that pushed the company to the brink of failure.

Thornburg avoided subprime loans, which have the highest default rate. Instead, the lender specialized in so-called jumbo mortgages of more than $417,000, which typically were used to buy more expensive homes by people with strong credit records. Until recently, such loans were too big to qualify for purchase by government-sponsored entities such as Fannie Mae, which limited their appeal to investors.

BLOOMBERG