Thornburg extends exchange offer for preferreds until Sept. 26

By Susanna Moon

Chicago, Sept. 23 - Thornburg Mortgage, Inc. said it extended the exchange offer and consent solicitation for its preferred stock to 12:01 a.m. ET on Sept. 26 from Sept. 23.

As previously disclosed, Thornburg said it continues to believe that it may not be able to close the exchange offer unless it reaches an agreement with the reverse repurchase agreement counterparties.

The company said on Sept. 16 that it amended the offer to remove the guaranteed delivery procedures.

The securities eligible for exchange are the company's 8% series C cumulative redeemable preferreds, series D adjusting-rate cumulative redeemable preferreds, 7.5% series E cumulative convertible redeemable preferreds and 10% series F cumulative convertible redeemable preferreds.

On Sept. 22, holders had tendered 93.1%, or 6,073,920 shares, of the series C preferreds; 94.9%, or 3,794,202 shares, of the series D preferreds; 94.9%, or 3,000,149 shares, of the series E preferreds; and 98.4%, or 29,828,209 shares, of the series F preferreds.

The offer began on July 23 and has been extended six times.

The company said that since the beginning of the exchange offer, the override agreement counterparties have made a series of unanticipated margin calls and have withheld funds payable to the company, actions that will leave Thornburg's liquidity greatly diminished if they are unresolved.

Thornburg said these actions are in conflict with its understanding of key features of the override agreement, including whether the margin calls are subject to a $350 million cap and whether the liquidity fund established under the override agreement can be used for corporate purposes other than paying margin calls.

Unless an agreement is reached, the conditions to the exchange offer will not be satisfied because Maryland law prohibits the company from paying the cash portion if, after making the payment, the company would be unable to pay its debts as they become due or the company's assets would be less than its total liabilities.

Consent bid for 18% notes

Because of cash constraints, Thornburg said it is soliciting consents from holders of its 18% senior subordinated secured notes due 2015 to agree to accept interest due on Sept. 30 in the form of additional notes.

Absent improvement in the company's current liquidity position, consents are needed from holders of at least 98% of the $1.15 billion principal amount of 18% notes in order for the company to make the interest payment and avoid a default.

MatlinPatterson Global Investment Advisors and its affiliates, which together hold more than 40% of the 18% notes, plan to agree to the company's request, according to a company news release.

Thornburg noted that successful completion of this consent solicitation will not by itself allow the company to satisfy the conditions to closing the exchange offer.

Exchange offer details

As of Sept. 8, holders had tendered 91.3% of the 8% preferreds, 91.6% of the adjusting-rate preferreds, 91.5% of the 7.5% preferreds and 71.5% of the 10% preferreds.

Thornburg is offering $5 in cash and 3.5 shares of the company's common stock for each preferred.

The company said it needed tenders from holders of at least two-thirds of the total liquidation preference of each series of preferreds.

The consents will allow Thornburg to amend its charter to modify the terms of the preferreds. Holders may not tender their preferreds in the exchange offer without delivering consent.

Upon successful completion of the exchange offer, the annual interest rate on the company's senior subordinated notes due 2015 will be lowered to 12% from 18%, resulting in savings of about $69 million per year.

The company previously said that successful completion of the exchange offer will result in the termination of the principal participation agreement component of its March 31 financing transaction, which would allow the company to retain the monthly principal payments on the mortgage-backed securities collateralizing its reverse repurchase agreement borrowings once the override agreement terminates in March 2009, after deducting payments due under those reverse repurchase agreements.

Questions can be directed to the company (888 310-7466) or the information agent, Georgeson Inc. (866 399-8748).

Thornburg is a Santa Fe, N.M., lender specializing in jumbo mortgages.

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