Moody's rates Thornburg Ba1

Moody's Investors Service assigned a Ba1 rating to Thornburg Mortgage, Inc.'s planned senior unsecured notes and confirmed its preferred stock at B3. The outlook is stable.

Moody's said the notes benefit from a comprehensive covenant package which includes a number of limitations on debt incurrence.

Confirmation of the preferred stock rating reflects Thornburg's successful asset growth and increased profitability offset by the further subordination of these securities as a result of the senior unsecured bond issuance.

Moody's said the actions reflect the superior asset quality and liquidity of Thornburg Mortgage's portfolio and the successful and profitable execution of its growth strategy. These factors are offset by high leverage, and risks associated with the company's repo funding strategy.

The company has been successful in growing its capital and asset base, as well as its direct mortgage origination business, without having to build a traditional mortgage production and servicing infrastructure. The size of the company's portfolio has tripled in the past two years, from $4.1 billion at year-end 2000 to $12 billion at March 31, 2003, while its book shareholders equity increased from $316 million to $992 million in the same period.

Thornburg Mortgage leverages its equity, including preferred stock, approximately nine times, which is high given the company's repo financing strategy.

Most of the Thornburg Mortgage's assets are pledged as collateral for secured financings.

Moody's views Thornburg Mortgage's reliance on uncommitted, marginable and short-term repo financing as a negative rating factor because of heightened exposure to liquidity risks in times of secondary market stress.

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