Troubled ultra-prime lender Thornburg Mortgage, Inc. said Wednesday morning that it got a much-needed reprieve from its five primary reverse repurchase agreement counterparties and their affliates covering $5.8 billion in repo funding. The lenders agreed not only to reduce their margin requirements, but also agreed to collectively suspend further margin calls for one full year. On the surface, that’s a pretty strong vote of confidence for a company many had pegged for the bankruptcy line just one week earlier. (And I think I can almost hear cursing from whatever corner office once housed Carlyle Capital’s management, too.) The benevolent five and their affiliates included Bear Stearns, Citigroup, Credit Suisse, Royal Bank of Scotland and UBS, according to a press statement released by the lender. “This is an unprecedented collaboration on the part of the company and its reverse repurchase agreement counterparties,” said Larry Goldstone, president and CEO at Thornburg. “This agreement illustrates the high degree of confidence our reverse repurchase agreement counterparties have in the superiority of our origination franchise, the quality of our assets and the strength of our management team.” But any agreement like comes with some important and costly strings attached: Thornburg will need to raise at least $948 million in new capital immediately to ensure its survival, it said. It will also establish a “liquidity fund” of $350 million and maintain in that fund an amount equal to five percent of the monthly outstanding borrowings from its aggregate repo facilities. The lender will also suspend its common stock dividend for the duration of 2008, it said. Thornburg also won’t borrow any additional funds in the reverse-repurchase agreement market during the next year, and will give its lenders warrants exercisable into 47 million shares of Thornburg at 1 cent per share. If exercised, the warrants would translate into 27 percent of the company stock outstanding. Concerns over dilution — and valid ones, at that — sent Thornburg shares down 30 percent in morning trading on the New York Stock Exchange, to $2.08. Nonetheless, a shot at solvency has to be considered a very good thing for the troubled lender, said Goldstone. “After careful consideration of our available options given the continued challenges in the mortgage securities markets, the company’s board of directors determined that the override agreement and this proposed capital raise and warrants offerings, though highly dilutive for existing shareholders, are in the best long-term interest of the company,” he said. For more information, visit http://www.thornburgmortgage.com. Disclosure: The author held no positions in TMA when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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