UPDATE: New Wave Of Margin Calls Hits Thornburg Mortgage

NEW YORK (Dow Jones) -- Shares of Thornburg Mortgage Asset Corp. fell morethan 50% on Monday, plunging as the lender said that it has not been able tomeet a new wave of margin calls worth at least $270 million and that it's facinga possible liquidity shortage.

The beleaguered lender said that because of the cost of meeting recent margincalls, it's been left with limited available liquidity and hasn't been able tomeet a "substantial majority" of margin calls made since Feb. 28.

"There is no assurance as to Thornburg Mortgage's ability to sell such assetsor raise additional funds in the current market at acceptable prices, or toraise additional capital," the Santa Fe, N.M.-based company (TMA) said in astatement. "If the company is unable to satisfy outstanding margin calls, any orall of its reverse repurchase agreement counterparties may declare an event ofdefault and liquidate the pledged securities."

That could force the lender out of business, Thornburg warned, because aninability to meet further margin calls would have a "material adverse effect onthe company's ability to continue its business in the current manner."

Citgroup analysts downgraded the lender's rating to a sell from a holdfollowing Thornburg's announcement.

"We are hopeful that [Thornburg]'s quality assets will enable it to meet themargin calls, but the downside risks are simply too high to maintain a holdrating," analyst Donald Fandetti said.

The Monday selling pressure on Thornburg's shares marks only the latest hurdlefaced by the lender, which said in a Feb. 28 filing with the Securities andExchange Commission that it had received margin calls totaling more than $300million between Feb. 14 and Feb. 27.

That spate of margin calls was precipitated by a drop of as much as 15% in thevalue of mortgage-related securities in early February, the company said at thetime.

Margin calls are a common response from investors when securities purchasedwith loans rapidly lose value. If they fall too far too fast, they may hittriggers that require the issuing company to either shore up their position orsell off additional assets.

In addition, Thornburg said Monday that it is in default with one reverserepurchase agreement counterparty but is currently working with the lender tocreate a repayment plan.

Analysts have been worried about future financial pressure on the lender.

"We believe if [Thornburg] were to experience further margin calls, forcing asale of the pledged assets, there could be approximately $2 of book value atrisk based on current market valuations," said Richard Shane, analyst withJefferies & Co., last week.

On Friday, Standard & Poor's Corp. cut Thornburg's rating because of theincreasing number of margin calls it is facing.

Swamped in spillover effect

Thornburg's been hit hard by the fallout in the mortgage market because it'sspecialized in two industry hot spots: adjustable-rate "jumbo" mortgages and thetrickier "Alt-A" loans.

Jumbo loans, which are loans of $417,000 or higher aimed at borrowers withstronger credit ratings and net worth, are not typically purchased bygovernment-chartered secondary mortgage purchasers Freddie Mac (FRE) and FannieMae (FNM) because these amounts fall outside of federally mandated conforming-loan limits.

Some of that pressure has been lifted for now, however, after a temporaryreprieve was provided by the federal government to temporarily increase theconforming limit to $729,750 until Dec. 21, 2008.

Thornburg also bet heavily on Alt-A mortgages, which have seen rising defaultrates in recent months and been the target of multiple fraud investigations intowhether or not borrowers falsely inflated their incomes in order to obtainfavorable loans.

As a result, crises of liquidity have become old hat to the lender. In August,Thornburg sold off $500 million in shares of preferred stock and auctioned off a $22 billion slice of its mortgage portfolio at bargain-basement prices.

The move barely bought it any breathing room, however: In October, the lenderreported a $1.1 billion loss for the third quarter and halted a dividendpayment. It reinstated dividend payouts in December.

Thornburg may also have been attempting to prepare investors for more bad newssince Thursday's original announcement of margin-call pressure.

"In the event that we cannot meet future margin calls from our available cashposition, we might need to selectively sell assets in order to raise cash,"Thornburg said at the time. "To date, no such sales have been required to meetmargin calls."

In the meantime, Wall Street is continuing to wait out the market -- butremains ambivalent about Thornburg's prospects for survival.

"With enough time, we expect mortgage market conditions to normalize," wroteDavid Hochstim, analyst with Bear Stearns (BSC), wrote in a note to investorslast week. "The question is how much time."

(END) Dow Jones Newswires 03-03-08 1056ET Copyright (c) 2008 Dow Jones & Company, Inc.