NEW YORK (Reuters) – Thornburg Mortgage Inc (THMR.PK) said it plans to file for Chapter 11 bankruptcy protection and go out of business, making the provider of “jumbo” mortgage loans one of the largest casualties of the nation’s housing slump and credit crisis.
The Santa Fe, New Mexico-based company had specialized in making mortgages larger than $417,000 to borrowers with good credit. Thornburg has struggled with liquidity problems since the summer of 2007, when the value of mortgages on its balance sheet began to fall, and later suffered a series of margin calls from its creditors.
“It was caught up in the credit crisis like everyone else,” said Christine Myatt, a partner and bankruptcy specialist at the law firm Nexsen Pruet in Greensboro, North Carolina. “It is better to go through Chapter 11 liquidation rater than Chapter 7 because it allows asset sales over a period of time rather than a forced sale right now.”
Thornburg said creditors including Citigroup Inc (C.N), Credit Suisse Group AG (CSGN.VX), JPMorgan Chase & Co (JPM.N), Royal Bank of Scotland Group Plc (RBS.L) and UBS AG (UBSN.VX) plan this month to seize and sell their collateral, using proceeds to reduce amounts Thornburg owes. The company said it also plans to transfer its mortgage servicing rights to these creditors.
In addition, Thornburg intends to sell its other assets, with the help of the restructuring firm Houlihan Lokey Howard & Zukin Capital Inc. It will also not make an interest payment due March 31 on senior subordinated notes maturing in 2015.
“Our dissolution was created by one issue, the inability to support the equity (margin) requirements for financing our mortgage securities portfolio, given the continued decline in mortgage-backed securities prices,” Chief Executive Larry Goldstone said in a statement.
In a November regulatory filing, Thornburg said it lost $2.75 billion, or $85.71 per share, in the first nine months of 2008. It ended September with $25.4 billion of adjustable-rate mortgage assets on its balance sheet.
Myatt said Thornburg might find asset buyers from participants in an Obama administration program announced last month to provide financing for private investors to buy assets, with the government shouldering much of the risk.
“Any competitor, including large banks, could come in,” she said. “We’re not seeing a lot of play in private equity and hedge funds, but when we see asset values bottom, we could see them start to come back in as well.”
In March 2008, Thornburg had arranged a $1.35 billion bailout from distressed debt investor MatlinPatterson Global Advisors LLC and other investors. MatlinPatterson last month surrendered all 120.8 million of its Thornburg shares.
Thornburg said the asset manager Thornburg Investment Management is a separate entity unaffected by the planned bankruptcy. Both businesses are chaired by Garrett Thornburg.
Shares of Thornburg were down 3.4 cents at 1.6 cents in morning trading on the Pink Sheets. The shares will likely be worth zero in a bankruptcy.
(Reporting by Jonathan Stempel; editing by John Wallace and Tim Dobbyn)