Thornburg survival hinges on shareholder votes

Approval of plan could complete financing deal

| The Associated Press

5/7/2008 - 5/8/08

NEW YORK — Shares of Thornburg Mortgage Inc. fell Tuesday, a day after the Santa Fe-based jumbo mortgage lender and investor urged its shareholders to pass a plan to increase the number of shares it can sell in an effort to remain in business.

Thornburg shares fell 6 cents, or 5.3 percent, to $1.07. Shares have traded between 69 cents and $28.23 during the past year.

Thornburg's board of directors is asking its shareholders to approve a plan that would increase the number of shares of stock in the company to 4 billion from 500 million and modify the terms of preferred stock outstanding, according to a filing with the Securities and Exchange Commission. The approval of those two amendments would complete requirements Thornburg needs to complete a financing deal with private equity firm MatlinPatterson.

Completing the financing deal is essential to Thornburg's remaining in business.

Both votes require a two-thirds majority to pass.

MatlinPatterson would receive $1.35 billion in senior subordinated secured notes and an option to purchase common stock for 1 cent per share as part of the financing arrangement.

Current shareholders holdings would be diluted by 90 percent under the terms of the deal.

Deterioration in the mortgage and credit markets has significantly hindered Thornburg's ability to operate since August.

In August, Thornburg was faced with margin calls — demands by lenders that required the company to provide more collateral for financing lines — in the wake of sharp declines in the value of mortgage holdings. Thornburg was able to meet those margin calls, but faced additional calls throughout the first quarter of 2008.

By March 6, Thornburg had faced $1.8 billion in margin calls in 2008, but was only able to meet about $1.2 billion of the requests. That has led it to try to negotiate new terms on its financing lines as it looks to raise new capital to pay off the calls and have enough cash to continue operating.