Five-fold jump in Thornburg profit

Struggling mortgage lender posts second-quarter net income of $412.3M - up from $78.1 a year ago - on one-off gains from asset sales.

August 26, 2008: 9:56 AM EDT

SANTA FE, N.M. (AP) -- Troubled mortgage lender Thornburg Mortgage Inc. said late Monday that its profit increased by more than five times in the second quarter, due to big one-time gains from the sale of assets and decreases in the fair value of certain items.

Shares more than doubled to as much as $1.06 in premarket trading Tuesday, after closing the previous session at 40 cents. Shares recently traded up 10 cents, or 25%, to 50 cents.

Big 12-month gain
For the period ended June 30, the company reported net income available to common shareholders of $412.3 million, or 84 cents per share, compared with $78.1 million, or 66 cents per share, in the year-ago period.

Results are based on 484.6 million common shares outstanding in the 2008 quarter and 119.3 million shares outstanding in the 2007 quarter.

The increase in results was primarily due to a $536.9 million fair value gain related to a liability; a $24.9 million fair value gain related to senior subordinated notes; a $14.3 million net gain on the sale of certain assets; and a $23 million gain on the extinguishment of debt.

Adjusted income after eliminating these items was $22.7 million, the company said.

Net interest income, or income generated from loans and deposits, fell 48% to $53.3 million from $102.3 million. Net noninterest income, or income generated from fees and other charges, jumped to $377.8 million from $6.8 million.

On Aug. 21, the company said it used money from its liquidity fund to pay margin calls totaling $219 million. As of August 22, Thornburg identified additional downgrades in its portfolio that would result in margin calls of $25.9 million.

Margin calls
Thornburg (TMA) said there can be no assurance that the company will not receive additional margin calls that could exceed the balance of its liquidity fund. Margin calls require companies to put up more collateral for financing lines of credit.

Thornburg -- which specializes in originating and investing in jumbo mortgages that are worth more than $417,000 -- has been struggling since the middle of last year amid the downturn in the real estate market.

In early March, Thornburg disclosed it had faced nearly $1.8 billion in margin calls since the beginning of the year. Thornburg faced a similar round of margin calls last August but was able to meet them.

As delinquencies and defaults among certain types of mortgages have risen, investors have shied away from purchasing nearly all types of loans in the secondary market.

The withering market for debt backed by mortgages has caused prices to plunge. As those prices fell, companies like Thornburg have been forced to reduce the value of their holdings, regardless of actual performance. Those declining prices also have banks making margin calls.

Staying afloat
Last week, Thornburg extended its exchange offer for four classes of its preferred stock, as part of its efforts to remain in business.

The exchange offer is being completed as part of a recapitalization deal Thornburg announced at the end of March to raise $1.35 billion in new capital through an investment by MatlinPatterson.

Thornburg needs to have at least two-thirds of each of four classes of preferred stock tendered for exchange to meet the requirements of the exchange offer.