Thornburg Mortgage: Pyrrhic Rescue, UPDATE1

“Victory with devastating cost to the victor.”

I wrote about this disaster in March of 2008 in Thornburg Mortgage: Pyrrhic Rescue and predicted the company would ultimately die.

Thornburg Mortgage may file Chapter 11 bankruptcy: “Thornburg Mortgage Inc (THMR.PK), a large and troubled provider of "jumbo" mortgage loans, on Tuesday said it may file for Chapter 11 bankruptcy protection.

The Santa Fe, New Mexico-based company has struggled with liquidity problems since the summer of 2007, when the value of mortgages on its balance sheet began to tumble. Thornburg later suffered a series of margin calls from its own creditors.

A bankruptcy filing would make Thornburg one of the largest U.S. mortgage providers to seek protection from creditors since the housing slump began, joining rivals such as Washington Mutual Inc (WAMUQ.PK) and IndyMac Bancorp Inc (IDMCQ.PK).

Thornburg has specialized in making mortgages larger than $417,000 to borrowers with good credit, but it ran short of capital as investors stopped buying its loans. It has stayed alive mainly through a series of agreements to restructure or otherwise delay paying its debts.

In a Tuesday statement, Thornburg said it is evaluating strategic alternatives to restructure its financing agreements, make deferred payments, and meet obligations to bondholders.

The company said it hired the law firm Kirkland & Ellis LLP and the restructuring firm Houlihan Lokey Howard & Zukin Capital Inc as advisers. It also said several of its own lenders have agreed through March 31 not to exercise their rights under various financing agreements.

Last March, Thornburg arranged a $1.35 billion bailout from the distressed debt investor MatlinPatterson Global Advisors LLC and other investors to stay out of bankruptcy.

According to a Tuesday regulatory filing, MatlinPatterson surrendered all of its Thornburg common stock -- 120.8 million shares -- on March 12 and 16 without any compensation. The firm's principals, David Matlin and Mark Patterson, resigned from Thornburg's board of directors on March 12, citing potential conflicts of interest.”