US mortgage lender has three days to find $1bn
Thursday, 20 Mar 2008 11:00
US mortgage lender Thornburg must raise $1 billion in three days to stave off bankruptcy
US lender Thornburg Mortgage has three days to raise $1 billion (£500 million) in extra capital to stay afloat.
In a notice with the Securities and Exchange Commission, Thornburg said it has entered into a new financing agreement with five of its creditors - Greenwich Capital, Royal Bank of Scotland, Bear Stearns, Citigroup and Credit Suisse.
But the lender must come up with the cash to secure the deal, which will seriously dilute the stock of common shareholders.
Thornburg also agreed to let the five lenders purchase approximately 47 million shares of its common stock, at a value of $0.01, which represents about 27 per cent of its outstanding shares.
The deal also requires that Thornburg creates and maintains a $350 million liquidity fund.
The company warned it may yet go bankrupt because it would have to sell off the rest of its mortgage assets at depressed prices.
Thornburg ran into problems when a sudden decline in the valuation of its securities portfolio in February left the company unable to meet $610 million (£308 million) of margin calls.
The ongoing subprime crisis in America has forced a re-valuation of mortgage-based securities, leading to huge losses for financial institutions all over the world.
Shares in Thornburg dived 49.66 per cent on the news.