Thornburg Mortgage stock sinks

Thornburg Mortgage stock sinks
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By | The New Mexican
August 14, 2007

46 percent fall follows downgrades by five market analysts

Trading in the shares of Thornburg Mortgage Asset, a major Santa Fe employer and the state’s largest publicly traded company, was halted Tuesday after the stock plunged almost 50 percent.

The company’s shares closed at $7.61, falling $6.67 per share, or 46.7 percent. In after-hours trading, the stock rebounded a bit to $9.58. It marked the second straight plunge for the company, whose share price started at $18.15 on Monday.

Thornburg Mortgage Asset is among the Thornburg Cos. and specializes in jumbo loans — those of about $500,000 and more — to borrowers with strong credit histories.

Thornburg Cos. also includes a separate mutual fund company, Thornburg Investment Management, consisting of stock and bond funds and separate portfolios. Total assets are more than $40 billion. Thornburg Investment Management is an employee-owned investment management company.

The plunge in Thornburg Mortgage followed downgrades Tuesday by five market analysts, including those at Moody’s, Standard & Poor’s and Deutsche Bank.

“Lower ratings typically make it more expensive for a company to borrow money,” an Associated Press story said. “As a mortgage lender, Thornburg relies heavily on borrowing money to originate new loans before selling them off in the secondary market to repay the loans.”

In an effort at damage control, Garrett Thornburg, the company’s founder and chief executive officer, in an interview on CNBC, said he has no intention of filing for Chapter 11 bankruptcy protection from creditors.

Thornburg also said the company has had some success in obtaining funding and would soon be in a position to fund itself on a day-to-day basis, a Reuters report said.

As a result of the financial disruption and to retain cash, Thornburg rescheduled its dividend payment to shareholders to Sept. 17 from today.

Investors have been selling shares in Thornburg and other mortgage companies because a lack of liquidity is causing the value of the company’s portfolio to sink.

“This exposes the company to margin calls, which means lenders demanding their money back because collateral securing credit lines are dwindling in value,” according to The Associated Press.

In a statement from the company, Thornburg said that by Sept. 17, it will have received scheduled monthly mortgage payments for August and will have had more opportunity to manage through “this difficult environment.”

The suspension followed “significant disruptions in the mortgage market, which resulted in the sudden and unprecedented decline in the market prices ... of its mortgage securities,” the statement said.

The statement also said the book value of its shares were $14.28 per share as of Aug. 13 versus $19.38 per share as of June 30.

“The majority of that book value decline has occurred over the past week, and is not a reflection of a change in the credit quality of our mortgage assets,” the statement said.

The statement also said Thornburg management has purchased more than 500,000 shares over the past three weeks.

“It is very scary to see Thornburg lose 40 percent of its market value,” said Patricia Rudy-Baese, a local certified financial planner. “It’s a bit of shock, but it is a reflection of what is going on in the industry as a whole. It reminds me a little bit of the meltdown we had after the tech bubble burst” in 2000.

Rudy-Baese said some of her clients have “small positions” in Thornburg Mortgage, but for the most part, “I moved my clients out of mortgage and construction-related stocks a long time ago.”

Gregory Duran, a Santa Fe financial adviser with New World Capital Management, said, “People have been in Thornburg for the dividend. That being said, if the dividend is delayed ... I would advise clients to use this opportunity to reduce their position in the stock.”

He added: “If you are allocating new money, it might be a good opportunity” to buy.

Sam DeLuca, a Santa Fe financial adviser, also doesn’t have a lot of Thornburg stock in his clients’ portfolio. “One client does have some — Thornburg is a big name around here,” he said. “They’re a very high-quality company.”

On the other hand, Thornburg’s business is also a complicated one, DeLuca said, so complex that “even the people in the mortgage business don’t understand it. Garrett (Thornburg) is really the only one who understands it.”

DeLuca doesn’t expect Thornburg Mortgage to lay off any workers because the company is such a lean operation.

If there’s any fault to be assigned to investors losing money on Thornburg, “it’s the rating companies,” De Luca said, explaining he companies were not quick enough to see what was going on with mortgage companies and to lower their ratings in a timely manner.

Information from the Associated Press was used in this report.