Fitch rates Thornburg note BB-, cuts preferreds to B+

Fitch Ratings said it assigned a BB- rating to Thornburg Mortgage, Inc.'s unsecured subordinated notes and downgraded its preferred stock to B+ from BB-. The issuer default rating and senior unsecured notes were affirmed at BB.

The agency also revised the outlook to negative from positive based on management's aggressive use of leverage as evidenced by the minimal cushion between the 12x maximum covenant for the adjusted debt-to-adjusted equity calculation, which was 11.5x as of Sept. 30, and the increase in the total debt-to-total equity ratio to 20.9x as of Sept. 30 from 11.1x in fiscal 2002.

Fitch said the downgrade of the preferred stock reflects the priority position of the subordinated debt in relation to the preferred stock in the event of default and the widening gap between the first dollar of rated senior unsecured debt and the last dollar of preferred stock resulting from the recent $100 million offering of series D preferred stock.

The affirmation of the issuer default rating and senior unsecured notes takes into account the company's substantial unencumbered assets - $1.332 billion as of Sept. 30 - and the doubling of the company's asset-back commercial paper facility to $10 billion, which the agency said expanded the total capacity of Thornburg's diverse funding sources, further lessening its dependency on the reverse repurchase agreements.

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