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Don't Count on a Fast Turnaround for Thornburg Mortgage

by: Tim Plaehn April 21, 2008 | about stocks: TMA    
Tim Plaehn

Tim Plaehn

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Here on this blog I was a big fan of Thornburg Mortgage (TMA) surviving the mortgage meltdown and making investors a bunch of money. Then in March it got hit by margin calls that basically wiped out the assets of the company. To save the company, management sold $1.3 billion of bonds with options to buy 90% of the company for 1¢ a share. It appears the company is now diluted down till its value is around the buck the stock is trading for.

I have no idea where Thornburg Mortgage will go from here. It seems like it will be a long time for the company to get profitable enough to start repaying the financial hole it has dug to survive. (Terrible metaphor!). I still hold a small, almost worthless position in TMA, so will hold on and see what happens. I am not counting on a fast turnaround!

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This article has 41 comments:

  •  
    Apr 21 09:08 AM
    Don't lose faith or nerve so easy. Nat City e.t.c are all in trouble. Don't single out TMA. I am holding for the big pay-off. It is not thier fault Bush has driven the economy into this shape. The Republicans have ruined this country with kissing big business asses. Vote Democrat. It will help end this economy Hell. Don't you think the war, gas pricing are hurting the housing market. Why is America silent? Why not boycott gas?
    It is not all because of bad loans it is the goverment. Bad loans are getting the blame.
    Let's help companys like TMA and thier staff. I am.
    Reply
  •  
    Apr 21 09:20 AM
    To Fraley, dude get out of the market. You have no clue what is driving the mortgage crisis. I bet you are totally unaware there is a mortgage crisis in Europe too caused by the same things that fueled it here. Politics whould be one of the last factors to consider when investing. You are an idiot.
    Reply
  •  
    Apr 21 09:29 AM
    You are right! The elections and politics have nothing to to do with the economy. If you live in a third world country.Where is Europe? I will remember your wise advise.
    You are the idiot. Politics is one of the driving forces.
    Who is it that drops the rates if not the goverment. Why are we borrowing money from Europe and Chinia if Goverment is not involved. They drove us to it.You must be a Bush lover!
    Reply
  •  
    Apr 21 03:23 PM
    So Fraley are you blaming Bush for the subprime crisis? If you do then give a good reason why. It's easy to follow the herd buddy. You have been duped. Our current legistlation is having to step in because many of the lenders were taking risky measures. How can you blame Bush for that?
    Reply
  •  
    Apr 21 04:06 PM
    Hello,
    I have not been duped. I wised up based on facts. Bush's opinion polls tell a story of woe. Would you buy a new house when you can't heat or cool the one you have. for a I am hanging on to my stocks. The consumer won't buy a house. The rates are right. Why because an expensive war we were duped into. HIGH as ever gas and heating prices. Uncertainty in our goverment. Media scare tactics. Bush and his administration have caused the ression to be in motion a few years back. Clinton had us right!
    Subprime borrowers are getting beat up by the economy. They where in trouble before thanks to Bush administration. That is one part of thier defaults. The other obvious blame is VERY poorly written loans to dead beats and investors.
    Reply
  •  
    Apr 21 04:26 PM
    The subprime crisis was simply caused by desperate banks giving loans to desperate people. I at one point 2 years ago was granted a loan by country wide for $85,000, claiming an income of 15gs a year, on top of my current mortgage and payments!!! As well as the underwriter claiming i made 50 a year. It is loans like this which was a arm that caused this crisis. I was lucky to sell the home i bought for a profit before getting in over my head, others were or are not. Tma is a jumbo loan co. giving loans to people who make big bucks, not people making 15 thou a year. I do not know if or when tma will come back but I am at $1.25 placing my bet that it will. As far as bush goes, come on wake up what good has he done for our economy as a whole. Maybe if gas prices and inflation were in check these people could pay there mortgages. On another note why are the feds councered that by lowering rates inflation will go up???????? Last I checked the hike in fuel prices has more to do with inflation then anything. Unless you live in a cave everything you buy is trucked, trained, and Shiped to America, all using fuel which cost more thus the price goes up.
    Reply
  •  
    Apr 21 04:36 PM
    Maybe next winter we will have a home heating crisis because people will not be able to afford $4.00 a gallon for oil to heat there homes. A 275 gallon tank now cost $1100 bucks to fill, at 4-5 tanks a year thats a hurtin. Compared of course to half that one year ago, man we are in trouble, GET BUSH OUT OF OFFICE NOW!!!!!!!!!!!!!!!!!. Bush cannot understand why the economy is slowing? What a idiot, Gee I guess the price of gas just to go to the store MIGHT have something to do with it, or inflation.
    Reply
  •  
    Apr 21 05:02 PM
    I dont understand people. Thornburg borrowed 1.3 billion to pay off margin calls. They still owe the money, but if thier AAA loans are good , wont they get the money back.....................
    Reply
  •  
    Apr 21 05:43 PM
    Did I read that right??? "Bush and his administration have caused the ression to be in motion a few years back. Clinton had us right! "
    Pardon me ...but Clinton rode Reagans coat tails on the economy and started its ruin. Although the moron Bush has helped to put nails in the coffin. Clinton did nothing but harm to our economy. And as to the war ...Gentlemen...WMD's or not..if a govt' official was raping your daughter and or killing you sons for no reason other than entertainment and you could not do anything about it because of oppression..?? Well, I will pay 10 dollars a gallon to make the worlds children not to mention my own daughter from a situation like that. We as Americans should hold our heads high. Bush we all agree is an idiot, BUT... we all might want him to be the man coming around the corner when our daughter is getting raped. Obviously he wouldnt just walk away like some worthless so called human beings out there.
    Reply
  •  
    Apr 21 06:23 PM
    You where scared into the rape idea by Bush. Do you really think we are safe because of the Bush war? Innoocent god fearing people have died. I am glad we have our great military. Sorry Bush did this to them.
    Halliburton is doing well by the way of war.
    Good for Cheyney. Sorry America. We where the ones getting@#@%%!!!!!! I feel for our health care and poor.
    Reply
  •  
    Apr 21 06:50 PM
    I agree with you that I don't care about paying big bucks for gas. People in this country need to walk more anyway. Maybe this is a wakeup call. Our country is full of fat people and were addicted to oil. I think it's kind of selfish that some people care more about the price of gas than people getting tourtured and raped in other countries. I love hearing people complain about the price per gallon of gas. As for TMA I'm long and look forward to a turnaround. I think it's a 3 to 4 stock by the end of the year.
    Reply
  •  
    Apr 21 10:03 PM
    i just hope we survive having 3 of the most incomptent failures in government history ( george bush, condoleeza rice, donald rumsfeld)
    Reply
  •  
    Apr 21 11:40 PM
    I don't think you have a clue! You must have bought TMA in the 10s, now you're loosing your ass. Good for you! Your opinion doesn't count, you have no credentials. It's a tragedy your silly post ranks in Yahoo. Get lost, looser!
    Reply
  •  
    Apr 21 11:51 PM
    Here is my link. Check it out!
    Reply
  •  
    Apr 21 11:54 PM
    Let's try again.
    Reply
  •  
    Apr 22 01:15 PM
    From reading this 100% negative post we should all sell TMA. Not one sentence in this article was positive. This guy seems severely depressed with nothing but negative vibe. Gotta look at the big picture and again I see TMA at 3 to 4 by the end of 08.
    Reply
  •  
    Apr 22 08:16 PM
    Okay, imagine this scenario… whomever we elect for president must be on probation for one (1) year after which the voters determine whether he/she should stay in office. If the vote is yes, the candidate then becomes president for a term of six (6) years. On the contrary, if the vote is no, the candidate must step down, and the opposing candidate becomes president under the same probationary period, until the office of president is filled by someone who has successfully served presidential probationary period.
    Reply
  •  
    Apr 24 07:43 AM
    Bloggers,

    Please take your politics to some other website. Also, some of you need to do a better job in expressing your thoughts in English.

    As for TMA...it is just another company that had a good business plan with other people's money when times were good. Then times went bad and OPM was lost. Too much debt has ruined a lot of financial companies...along with poor lending practices and other things too numerous to mention.
    Reply
  •  
    Apr 24 12:01 PM
    Wow. I was expecting a stock blog to be a bit more ... dry. I agree that our country has had very, very poor leadership over the past eight years -- but that brings me to my question: I think that Larry Goldstone is a very smart man who offers Thornburg Mortgage strong and inventive leadership. Doesn't that count for something when considering a stock? (A serious question -- I usually invest in mutual funds.)
    Reply
  •  
    Apr 24 01:11 PM



    On Apr 24 07:43 AM jjason wrote:

    > Bloggers,
    >
    > Please take your politics to some other website. Also, some of you
    > need to do a better job in expressing your thoughts in English.
    >

    Dulcinea Replies:

    JUST A SUGGESTION...
    PERHAPS IF SOMEONE WOULD SUBMIT A FACTUALLY DECENT AND INTELLECTUALLY STIMULATING ARTICLE IN REGARD TO INVESTORS' INTERESTS IN THORNBURG MORTGAGE AS WELL AS AN ARTICLE WORTHY OF RESPONSE BY INTELLIGENT, ARTICULATE BLOGGERS, THEN PERHAPS THE RESPONSE REALIZED MIGHT ACTUALLY BE A TRULY INTELLECTUAL AND EDIFYING DISCUSSION BOARD WHEREBY PARTIES INTERESTED IN SAID TOPIC WOULD BE DRAWN TO PARTICIPATE!
    Reply
  •  
    Apr 25 11:17 AM
    The only reason for the destruction of shareholder value was technicalities in GAPP that require TMA to write down their assets to reflect their "market value." The problem with this is the methodology TMA is required use to revalue its assets is based on the trading value of similar assets in the market. This is insane! There is no market right now for TMA's assets on the open market. That does not mean that the assets are worthless. THE TRUE VALUE OF TMA'S MORTGAGE HOLDINGS WAS THE PRESENT VALUE OF ALL FUTURE EXPECTED NET CASHFLOWS. For the high quality loans in TMA's portfolio, this value has changed very little (if at all). However, the GAPP rules required TMA to reduce the carrying value of these assets to artificially low levels. These artificiall values are what triggered the margin calls and sell off and subsequent destruction of shareholder value. B.S. accounting rules (intended to make businesses stronger) destroyed TMA.
    Reply
  •  
    Apr 25 11:21 AM
    PWCApr 25 11:17 AMThe only reason for the destruction of shareholder value was technicalities in GAPP that require TMA to write down their assets to reflect their "market value." The problem with this is the methodology TMA is required use to revalue its assets is based on the trading value of similar assets in the market. This is insane! There is no market right now for TMA's assets on the open market. That does not mean that the assets are worthless. THE TRUE VALUE OF TMA'S MORTGAGE HOLDINGS WAS THE PRESENT VALUE OF ALL FUTURE EXPECTED NET CASHFLOWS. For the high quality loans in TMA's portfolio, this value has changed very little (if at all). However, the GAPP rules required TMA to reduce the carrying value of these assets to artificially low levels. These artificiall values are what triggered the margin calls and sell off and subsequent destruction of shareholder value. B.S. accounting rules (intended to make businesses stronger) destroyed TMA.
    Reply
  •  
    Apr 26 09:29 PM
    GAAP didn't do them in, it was the debt covenants. Being highly levered (20x) and over reliant on short term (40% of total debt), when the security value (as defined in the loan docs) decreased they had no additional assets to pledge. The lenders began to mitigate their loss exposure by declaring defaults and cashing out their security positions. TMA didn't have any unpledged assets to satisfy the lenders. Although it is unusual to see the lenders and the accountants in agreement.
    Reply
  •  
    May 01 05:08 PM
    Considering that TMA still has almost no delinquencies and had nicely rising origination volume in 1Q08, it was the "mark to market" accounting rule changes that destroyed them. In terms of actual cash flows, they are profitable in 4Q07 and 1Q08 was looking much stronger. But when your 99.53% performing AAA asset (AAA without using credit enhancement from the insurance companies, mind you) is selling at 70 cents on the dollar, it's lights out.

    The companies lucky enough to buy TMA's assets will be marketing it back up to 95-99 once the credit crunch is behind us, or the loans eventually payoff over time.
    Reply
  •  
    May 05 10:29 AM
    Please target your comments to the question of the moment. Political commentaries belong on political sites - not this one.
    Reply
  •  
    May 10 12:58 PM
    ny petinent thoughts based on data and analysis?
    Reply
  •  
    May 12 05:23 PM
    I voted NO on the proxy vote where the management wanted to dilute the ownership of current share holders by giving away shares valued at 1 penny per share to lenders agreeing to beef up the balance sheet. Just too dilutative as far as I am concerned. This process dilutes our ownership to where we only own 10% of what we owner previously. We will never get our money back. I encourage everyone to VOTE NO
    Reply
  •  
    May 14 07:35 PM



    On May 12 05:23 PM JohnW. wrote:

    > I voted NO on the proxy vote where the management wanted to dilute
    > the ownership of current share holders by giving away shares valued
    > at 1 penny per share to lenders agreeing to beef up the balance sheet.
    > Just too dilutative as far as I am concerned. This process dilutes
    > our ownership to where we only own 10% of what we owner previously.
    > We will never get our money back. I encourage everyone to VOTE NO

    Dulcinea Replies:
    Oh PLEASE, if you vote NO, it means a sure and sudden death for the company!!! IF you would do your research on MatlinPatterson, you would learn that they intend to bail Thornburg Mortgage out, and TURN THE COMPANY AROUND! Seriously, why else would they put SO MUCH ON THE LINE HERE??? Come on people, use your common sense. Voting YES is the only salvation for the company. If you really care, don't get mad. Instead, attend the shareholder meeting on June 12th. I intend to go, and I intend to VOTE YES simply because it is the only chance shareholders have of surviving this. I encourage you to think about it. TMA is a great company, and they deserve a chance to make a comeback. Don't deprive them of this opportunity. Give them the benefit of your YES VOTE!!!
    Reply
  •  
    May 14 07:37 PM
    Dulcinea Replies:
    Oh PLEASE, if you vote NO, it means a sure and sudden death for the company!!! IF you would do your research on MatlinPatterson, you would learn that they intend to bail Thornburg Mortgage out, and TURN THE COMPANY AROUND! Seriously, why else would they put SO MUCH ON THE LINE HERE??? Come on people, use your common sense. Voting YES is the only salvation for the company. If you really care, don't become vindictive. Instead, attend the shareholder meeting on June 12th. I intend to go, and I intend to VOTE YES simply because it is the only chance shareholders have of surviving this. I encourage you to think about it. TMA is a great company, and they deserve a chance to make a comeback. Don't deprive them of this opportunity. Give them the benefit of your YES VOTE!!!
    Reply
  •  
    May 16 12:30 PM
    The management at Thornburg put up "one hell of a fight" to save the company. What we have today is a lot more than what we're going to have tomorrow if the company goes under. A yes vote gives the company life and a hope....a no vote and we all get nothing.
    Reply
  •  
    May 19 07:50 PM
    Is this a possible Scenario? First, let’s assume that Thornburg did the best that they could at the time, and acknowledge that accounting rules and the panic at the time precipitated a deal like the one that was made. Would a NO vote by stockholders negate the existing tentative deal? If so, with the information that exists now, is it foreseeable that another lender/buyer could come to the table with a deal that is fairer to all parties involved?
    Reply
  •  
    May 22 04:40 PM
    what is the prospect that a large investor will step forward. it was the illiquid markets that set this company back. the subprime poor lending standards came about because freddie and fannie were out of the market place during these years having been frozen by a campaign by the republicans and bush to first discredit their important role in buying mortgages and setting the standard of the kind of mortgages they were willing to buy. syron of freddie was part of the plan to dismantle the gse's. look at his resume.

    so yes bush was responsible and politics do play an important role in wealth creation and the stock market analysis. next up the future of solar energy vs. big oil and the utitlity industry and those institutions invested accordingly.
    Reply
  •  
    May 26 12:30 PM
    Ok, so we were all seeking alpha as far as when we bought Thornburg (at least I did) and right now we're getting zeta (the bottom number of the greek alphabet). "The truth will set you free" so what is the truth here, are we getting a better deal by voting "yes" and taking it up the "blank" or voting "no" and forcing other alternatives to come about. (the alternatives might be bad like bankruptcy, or better like another deal that doesn't involve dillution). I'm reading the Q and A's in the proxy statement, but that's biased based on what they want us to hear. Just one question for anyone willing to help: vote "yes" or "no" ??? (no emotions please)
    Reply
  •  
    May 27 11:57 PM
    VOTE YES AND WE GET A NICE RALLY TO SELL HALF OUR POSITION/ VOTE NO AND WE KEEP GOING DOWN AND HOPE FOR A BETTER DEAL... WHAT ARE YOU GONNA DO? i'm sitting on 10k shares at 0.71 a share, i'd love a POP to 1.3 again
    Reply
  •  
    May 28 05:12 PM
    I think Thornburg hung on as long as they could. They tried to hold out for a better deal, but it just didn't happen. I don't think it is going to get any better than what they have now. They are up against too much. They need somebody with the muscle and deep pockets of MatlinPatterson to throw them a lifeline. With all the big investment banks and brokerage firms writing of billions of dollars of bad debt, how can Thornburg possibly get a better deal. I honestly think they are blessed that MatlinPatterson thought they were worth anything at all. Wish it could have turned out better... might as well go with the flow. Just my two cents worth :)
    Reply
  •  
    May 28 10:42 PM
    I doubt the stock is going to double just like that SMALLINVESTOR. It'll probably take a few years for that to happen because future events are built into the price. I bet the market already knows what's going to happen and we're the sad bystanders.
    Reply
  •  
    May 29 02:44 PM
    ----------------------...
    TMA - THORNBURG MORTGAGE INC
    SEC Form DEFA14A Period: MAY. 12. 08

    Thornburg Mortgage’s situation

    Why did the industry fall on such hard times?

    The mortgage industry is facing some of its most difficult years in the history of the industry. Residential real estate values have declined significantly throughout the United States and defaults and foreclosures are reaching historic highs. Due to fears in the marketplace and demands of lenders, Thornburg Mortgage – and much of the mortgage industry – was faced with and continues to face sudden and severe liquidity problems stemming from large volumes of margin calls on mortgage-backed securities -from our lenders.

    How is Thornburg still in business?

    Beginning on February 14, 2008, mortgage-backed securities prices once again declined significantly, and there was a deterioration in the liquidity and market prices for high quality mortgage-backed securities in our portfolio. This made it difficult for us to obtain financing, and, as a result of these declining prices, we were also subject to margin calls and margin increases on our collateralized financings. From December 31, 2007 through March 6, 2008, we received $1.8 billion in margin calls, of which approximately $907 million occurred after February 14, 2008. While we were able to meet margin calls of $1.2 billion, on March 6, 2008, we were unable to meet $610 million of remaining margin calls. Despite negotiations with our reverse repurchase agreement counterparties during the first two weeks of March, by March 12, 2008, we had received notices of events of default from five different reverse repurchase agreement counterparties, on an aggregate amount of $1.8 billion in outstanding obligations to these counterparties. We were able to negotiate with our reverse repurchase agreement and auction swap agreement lenders to secure a 364-day reprieve from margin calls and a reduction of margin requirements. This agreement required us to raise at least $1 billion in capital in a very short period of time. We were able to raise $1.35 billion in financing from MatlinPatterson and 49 other investors that helped maintain our ability to stay afloat.

    Is Thornburg Mortgage out of trouble?

    No. We are still navigating through these tough times, and, the financing transaction with MatlinPatterson and the other investors included conditions that we must meet in order for us to be put in a position to resume normalized business operations. Approval of the proposals in the proxy is necessary to meet some of those conditions and approval will help us rebuild our core business: originating and securitizing loans. We still have a lot to do, but these proxy issues are a priority. Your vote is very important for the future of Thornburg Mortgage.

    Wouldn’t bankruptcy be a better option?

    The Board of Directors considered other alternatives, including financing certain unencumbered assets, publicly offering for sale preferred stock and convertible debt, declaring bankruptcy, liquidating all of our assets and selling ourselves to another company, but determined that each of these alternatives was unavailable, insufficient to pay all margin calls and provide sufficient reserves to cover additional margin calls, insufficient to meet the terms of the Override Agreement or even more dilutive to shareholders than completion of the recent financing transaction.

    In addition, given the terms and conditions of the standard reverse repurchase agreement contracts and the fact that certain provisions of U.S. bankruptcy law do not offer protection with respect to these agreements, the Board determined that existing shareholders were likely to receive nothing if we were to declare bankruptcy.
    Reply
  •  
    May 29 02:51 PM
    ----------------------...
    TMA - THORNBURG MORTGAGE INC
    SEC Form DEFA14A Period: MAY. 12. 08

    What happens if shareholders VOTE AGAINST and do not approve the amendment to our charter to increase the number of authorized shares of capital stock?

    There will be several significant adverse consequences for us and our shareholders if the proposal to amend our charter to increase the number of authorized shares of capital stock is not approved.

    First, if the charter amendment is not approved, the interest rate on our senior subordinated secured notes due 2015 will remain at 18% per annum, instead of being reduced to 12%. This means that we will make additional annual interest payments of approximately $69 million to the holders of those notes until the notes are repaid.

    Second, our new investors under the Principal Participation Agreement will be entitled to 100% of the principal payments on a significant portfolio of mortgage-backed securities generally commencing on March 19, 2009 through March 31, 2015. The investors in the Principal Participation Agreement would also be entitled to a payment on March 31, 2015 equal to the fair market value of the mortgage-backed securities subject to the reverse repurchase agreements in excess of any financing related to those assets. Additionally, any future appreciation in the fair market value of these assets would be recovered by investors in the Principal Participation Agreement, as opposed to being recovered by Thornburg Mortgage for the benefit of our shareholders. This will make it difficult for us to resume normalized business operations.

    Third, we will not be able to issue additional senior subordinated secured notes in exchange for the $200 million of escrowed funds as described above.

    Does Thornburg Mortgage intend to issue all 3.5 billion of additional shares it’s asking shareholders to authorize?

    No. If the proposal to amend our charter to increase the number of authorized shares of capital stock is approved, of the 3.5 billion additional shares of capital stock being authorized, approximately 2.7 billion will immediately be reserved for issuance upon exercise of warrants we have agreed to issue to investors in the financing transaction and for use in the tender offer. The common stock underlying the warrants that have been and are anticipated to be issued in connection with the financing transaction, the shares of common stock anticipated to be issued in the tender offer and the common stock underlying the warrants issued to the counterparties to the Override Agreement, will represent approximately 94.5% of our common stock on a fully diluted basis. The approximately 800 million remaining authorized shares may be issued at the discretion of the Board of Directors, without further shareholder approval, for various purposes, including (without limitation) raising capital and providing incentives to employees, officers, directors and other persons expected to provide significant services to us.

    Did the Board of Directors consider alternatives to the financing transaction?

    Yes, the Board of Directors unanimously approved the proposal you are voting on only after thoroughly considering the reasonably available alternatives. On March 19, 2008, we initiated a public offering of $1 billion in convertible senior subordinated notes. However, that proposed offering failed to attract enough investor interest to satisfy the capital-raising condition of the Override Agreement, and our management team and Board of Directors continued to explore reasonably available options to preserve shareholder value, including, but not limited to, asset liquidation, the sale of Thornburg Mortgage to a third party, and even filing for bankruptcy, which would have triggered an immediate default under our reverse repurchase agreements and likely resulted in no recovery for our common and preferred shareholders.

    For the good of our shareholders and the viability of Thornburg Mortgage going forward, the Board of Directors determined that the financing transaction with MatlinPatterson and the other investors, which included the proposed amendment to our charter, represented the best alternative reasonably available to us and our shareholders.
    Reply
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