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Case Conclusion Date: 03.31.2008
Practice Area: Debt and lending agreements
Outcome: Raised $1.35 billion in private placement of debt
Description: Thornburg Mortgage, Inc. (NYSE: TMA) today announced that it has completed its previously announced offering to raise $1.35 billion from the sale of senior subordinated secured notes, warrants to purchase common stock and a participation in certain mortgage-related assets. The company has received $1.15 billion of the proceeds from the offering. The remaining $200 million of the offering proceeds is being held in escrow and will be delivered to the company upon the successful completion of a tender offer for its preferred stock, as described below. The company's senior subordinated secured notes, which are scheduled to mature on March 31, 2015, have an annual interest rate of 18%, which will be adjusted to 12% upon shareholder approval of an increase in the number of authorized shares of capital stock that the company may issue to 4 billion shares and the successful completion of a tender offer for its preferred stock, as described below. Each purchaser of these notes also received initial detachable warrants to purchase shares of common stock, which are exercisable at a price of $0.01 per share. These warrants, in the aggregate, will be equal to approximately 39.6% of the currently outstanding fully diluted shares of the company after giving effect to all anti-dilution adjustments under all existing instruments and agreements. The company sold $1.15 billion aggregate principal amount of the notes and the detachable warrants for an aggregate purchase price of $1.05 billion. In addition, the company and the investors in the new notes have entered into a 7-year Principal Participation Agreement whereby the investors have paid the company $100 million and, in return, the investors will receive monthly payments in the amount of the principal payments received on the company's portfolio of mortgage securities and other assets constituting collateral under the Override Agreement described below, after deducting amounts due under the financing agreements that relate to such assets. Investors will be entitled to receive these payments from the March 16, 2009 expiration date of the Override agreement through March 31, 2015, the maturity date of the Principal Participation Agreement. At the maturity date of the Principal Participation Agreement, the investors will receive the mark-to-market valuation of the collateral after deducting the then outstanding balances of the financing agreements that relate to such collateral. The Principal Participation Agreement may be terminated before the 7th year anniversary, at the company's option, upon the occurrence of a shareholder vote to increase the number of authorized shares, the purchase by the company of at least 90% of the outstanding preferred stock in the tender offer described below and the issuance of the additional warrants as described below. Upon approval of the company's shareholders of an increase in the number of authorized shares of capital stock, the purchase by the company of at least 90% of the outstanding preferred stock in the tender offer described below and termination of the Principal Participation Agreement described above, those investors who are participants in the Principal Participation Agreement and those who have subscribed to the escrow fund, if such funds are used (both as described below) will then receive additional warrants such that the additional warrants, together with the initial detachable warrants will be exercisable for shares of common stock that constitute 87.8% of the fully diluted equity of the company after giving effect to the issuance of warrants to purchase 5% of the company's common stock on a fully diluted basis in the tender offer and all anti-dilution adjustments under all existing instruments and agreements. (If warrants are not issued in the tender offer, the initial and additional warrants would constitute 90% rather than 87.8% of the fully diluted shares outstanding.) Upon the occurrence of these events, the investors will receiv