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Thornburg May Sell Securities to Meet Margin Calls (Update5)

By David Mildenberg and Sal Giangrasso

Feb. 28 (Bloomberg) -- Thornburg Mortgage Inc., the finance company that sold $21.9 billion of assets in August because of a cash shortage, said it may have to sell more securities to meet lenders' demands for increased collateral.

The company declined the most in six months in New York trading after Thornburg said it met $300 million of margin calls since Feb. 14. The move depleted available cash and reduced its ability to meet future demands for more collateral, the lender said in a filing with the U.S. Securities and Exchange Commission today.

Thornburg, a specialist in adjustable-rate loans too big to be sold to government-chartered Fannie Mae and Freddie Mac, was one of more than 100 mortgage companies that halted lending or left the business in 2007. The company sold assets in August as U.S. foreclosures climbed to a record and investors shunned home loans. Thornburg resumed lending in September and issued $500 million in preferred shares to bolster its finances.

``The market has been in a deep freeze for anything other than Fannie Mae, Freddie Mac or Ginnie Mae conforming loans,'' said David Olson, president of Wholesale Access Mortgage Research in Columbia, Maryland. ``Home prices are falling more and more rapidly, and consumer sentiment is terrible.''

Thornburg expects to be profitable this quarter and throughout this year, Chief Executive Officer Larry Goldstone said in a Bloomberg Radio interview.

The company dropped $1.78, or 15 percent, to $9.76 at 4:01 p.m. in New York Stock Exchange composite trading. The stock has declined 61 percent in the past year.

Alt-A Declines

Bonds backed by Alt-A loans have lost 10 percent to 15 percent of their value since the end of January, leading to the margin calls on such securities, Thornburg said. Alt-A mortgages are typically made to homeowners with credit scores that are above subprime and below prime. Alt-A borrowers often have weaker documentation of their income levels than prime borrowers or have taken so-called option ARMs, with minimum payments that create growing loan balances.

``It's just a sign of the credit lockup,'' Goldstone said. ``Across the entire board, mortgage prices are lower today than they even reached last August.''

The problem worsened Feb. 14 when UBS AG, Europe's largest bank by assets, reported a record fourth-quarter loss on $13.7 billion in writedowns on assets infected by subprime mortgages. Many investors assumed UBS would sell its holdings, prompting a sharp fall in the prices of the securities, he said.

`Market Uncertainty'

Standard & Poor's analyst Jason Willey cut his rating on Thornburg to ``hold'' from ``buy'' and reduced his price target to $10 from $14.

``We expect market uncertainty and poor demand will limit the liquidity of mortgage securities,'' Willey said in a note to investors.

Thornburg may need to cut its dividend, UBS analyst Omotayo Okusanya said in a report today. He rates the stock at ``neutral.'' Thornburg gave a 25-cent-a-share quarterly dividend on Jan. 30 after making no payment in the prior quarter.

The company previously reported a $64.8 million fourth- quarter profit, following a $1.1 billion third-quarter loss. Goldstone, in a Bloomberg TV interview on Jan. 28, called the company's shares ``a great investment market opportunity, probably the best I've seen.''

About 0.44 percent of Thornburg's loans were more than 60 days late as of Dec. 31, below the industry's average ratio of 4.2 percent on adjustable rate loans, Thornburg's filing said.

Credit Quality

Credit quality remains solid in both Thornburg's purchased securities and the loans it originates, Goldstone said. ``We haven't seen a material change in the credit quality of our portfolio,'' he said.

Thornburg raised $212 million through two stock offerings in January, including 7 million shares of common stock sold at $8 each. Texas real estate and energy investor Richard Rainwater bought a 5.5 percent stake in January.
IndyMac Bancorp Inc., the second-biggest independent U.S. mortgage company, lost 73 cents, or 10 percent, to $6.35. No. 1 Countrywide Financial Corp. fell 34 cents, or 4.9 percent, to $6.64.

To contact the reporters on this story: David Mildenberg in Charlotte at dmildenberg@bloomberg.net ; Sal Giangrasso New York at sgiangrasso@bloomberg.net ;

Last Updated: February 28, 2008 16:59 EST