Thornburg Mortgage, the beleaguered Santa Fe lender that has been buffeted by credit problems, has postponed until Monday a critical effort to raise money to save the company.
Late Thursday, Thornburg postponed the pricing of $1 billion in convertible securities that had been slated to sell on Thursday.
Thornburg earlier this week announced a plan to give away a big stake in itself and borrow the $1 billion at a high interest rate to appease its lenders, who agreed to stop issuing margin calls— or asking for their money back— if Thornburg raises enough cash.
Failure to complete the deal, Dow Jones Newswires reported Friday, would likely push Thornburg into filing for bankruptcy protection as its creditors withdraw from the agreed-upon pact.
"We are continuing to work with large investors who have a lot of due-diligence questions, and, therefore, we've postponed our pricing until Monday while we work through this process with them," said Thornburg spokeswoman Suzanne O'Leary Lopez. "Our lender agreements are still in place."
Thornburg, in a U.S. Securities and Exchange Commission filing, said this week that, without the new capital, it would be forced to sell its remaining mortgage assets at depressed prices, which "may cause us to have to seek bankruptcy protection."
News of details of the deal with the lenders sent Thornburg shares plunging, to $1.13 at close of trading Thursday before the Easter break.
The company was trading at more than $28 last year, before a crisis in the sub-prime mortgage industry sent shock waves through the credit market that reached even high-end lenders like Thornburg.
Thornburg has already repaid lenders $1.2 billion and still faces more than $500 million in margin calls. As part of the proposed deal, lenders can buy a huge portion of Thornburg stock for a penny a share.
Thornburg Mortgage owns a $35.2 billion portfolio of mortgage debt, mostly bonds backed by home loans carrying good credit.
The company typically pledges these bonds as collateral to borrow money as part of its business. But recent fears about Alt-A mortgages— home loans for borrowers who typically have good credit scores but lacked the documentation to be considered prime— have decreased the value of the collateral Thornburg has put up to borrow money.
Many firms that have loaned money to Thornburg have tried to get their money back, forcing the company to sell investments at distressed prices.
In a bid to stem the tide, Thornburg reached the deal with lenders— Bear Stearns, Citigroup, Credit Suisse, Greenwhich Capital, Royal Bank of Scotland Group and UBS AG— who have provided about $5.8 billion in so-called reverse repurchase lines of credit.
As part of the deal, Thornburg must raise $948 million in capital soon, which it says it will do by selling $1 billion in bonds bearing an interest rate of 12 percent.
These bonds can be converted to Thornburg stock at a rate of 75 cents per share. If the conversion occurs, it will increase the number of Thornburg's existing shares by more than 500 percent.
Thornburg will also grant its lenders options to buy 47 million shares, or more than a quarter of the company's stock, at a penny per share.
Although the deal will water down the value of the stock shareholders currently own, Thornburg president Larry Goldstone said this week it will give the company liquidity and staying power to remain afloat.
Thornburg employs about 170 people in Santa Fe and pumps millions into the local economy.
