Thornburg Mortgage (TMA) was forced to raise $1.35 billion from the sale of senior subordinate notes to meet margin calls. To get the emergency funding, the company had to sell out current common and preferred shareholders.
Common shareholders will be diluted by up to 95% due to new share issues and preferred shareholders are being asked to take a little over 20% of their initial investment as the company tries to buy back its preferred. Any investment in TMA is risky at this point. Common shares a now virtually worthless due to massive dilution, and there is a good chance that TMA will be de-listed or even be forced into bankruptcy.
Book value at 1Q08 end was (12.07) per share vs. $6.63 at year end 2007. The decrease was mainly due to impairment charges, losses on asset sales and new financings. Shareholder equity is now negative 2 billion and we see no near term upside to the common shares at this point. Even if the company survives, housing values continue to drop and delinquencies are on the rise, even for affluent borrowers, and we have not yet reached a bottom in the housing market.
Most of the company's financing options going forward are gone due to the conditions of the Override Agreement and conditions in the capital markets. We think TMA will have a difficult time getting enough capital to fund loans going forward. We are changing our near term recommendation to Sell.
Read the full analyst report on TMA
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