Struggling Thornburg sees gains

Profits improving, shares up 9 cents for mortgage giant

Bob Quick | The New Mexican

8/26/2008 - 8/27/08

Thornburg Mortgage shares rose 9 cents to 49 cents per share in trading Tuesday on Wall Street after the company said its profits improved more than five times in the second quarter because of gains from the sale of assets and other factors.

For the quarter ended June 30, the company reported net income of $412 million, or 84 cents per share, compared with $83.4 million, or 66 cents per share, a year ago.

Results are based on 484.6 million common shares outstanding in the 2008 quarter and 119.3 million shares outstanding in the 2007 quarter. Troubled Thornburg Mortgage earlier this year issued additional shares of common stock as part of its efforts to return to normal operations.

The company originates jumbo mortgages, those worth more than $417,000, but Thornburg Mortgage has temporarily stopped issuing those mortgages.

Despite the improvement in earnings, Thornburg Mortgage president and chief executive officer Larry Goldstone said Tuesday morning in a conference call that the company is still struggling. "Things are very challenging as market conditions and circumstances continue to evolve and move around," he said. "We continue to have going-concern issues."

Thornburg Mortgage has been affected by an evaluation by Fitch, a credit-rating company, which was completed this month. The evaluation resulted in a $36.4 million drop in the value of Thornburg Mortgage's mortgage-backed securities as of June 30 and further losses since that time.

"The company believes that absent further deterioration in the underlying loans, the current carrying value adequately reflects any inherent losses," a news release indicated.

On Thursday, Thornburg used money from its $350 million liquidity fund to pay margin calls of $219 million. And the following day, Thornburg Mortgage identified other downgrades in its portfolio resulting in $25.9 million more in margin calls.

Margin calls require companies to provide more collateral for financing lines of credit.

In the meantime, Thornburg Mortgage is dealing with its lenders about "possible ambiguities" with regards to the liquidity fund, which is being used to pay margin calls.

Thornburg is in the midst of a tender offer of four classes of preferred stock that requires at least two-thirds of those shares to be tendered as part of the company's financial reorganization.

"We think we have successfully completed the tender offer," Goldstone said. "We won't know for sure until it closes" Sept. 3.

The benefits of the tender offer include, among other things, a reduction in the interest rate Thornburg Mortgage pays its private investors from 18 percent to 12 percent.

On the bright side, in the second quarter, the credit performance of Thornburg Mortgage's adjustable-rate loans remained strong. As of June 30, 60-day plus delinquent loans in the company's portfolio of 34,915 loans totaled 0.65 percent, well below the industry's conventional delinquency rate of 6.79 percent.

The Associated Press contributed to this report.