Thornburg Mortgage Inc. is offering notes to come up with capital that will keep it in business. But the cost of the funds is far from prime.
The Santa Fe, N.M.-based company announced today it will commence a private placement of up to $1.35 billion in senior subordinated secured notes due in 2015.
The interest rate on the on the notes is 18 percent, though the rate will drop to 12 percent if Thornburg meets certain conditions, the statement said. Those conditions, however, were not disclosed.
Last week, the real estate investment trust worked out a deal with its lenders that would forestall further margin calls for one year. But the deal required Thornburg to raise $948 million within seven days.
Subject to shareholder approval to issue more stock, the private investors in today’s deal will receive detachable warrants to purchase common stock at an exercise price of $0.01 per share, Thornburg said. The warrants will represent 48 percent of fully diluted equity.
The private placement also calls for a $100 million payment to Thornburg, which for seven years will entitle the investors to payments equal to the amount in excess of the principal payments on Thornburg’s portfolio of mortgages and other assets securing the override agreement with its lenders. Thornburg can terminate this agreement early if it obtains shareholder approval to increase the number of authorized shares.
The private placement must be completed by March 27, otherwise Thornburg will have to pay the lead investor $18 million.
Thornburg said it will forego shareholder approval on the private placement because the board of director’s audit committee determined that any delay from seeking shareholder approval would seriously jeopardize the financial viability of the company.