Thornburg starts purchasing its preferred stock

Thornburg Mortgage Inc. said Wednesday it is initiating a preferred stock exchange to attempt to satisfy certain options in the $1.35 billion bailout that saved the company March 31.

Thornburg is offering shareholders $5 in cash and 3.5 shares of the company's common stock for each preferred share. The offer will end Aug. 20.

The question of whether preferred stockholders would agree to tender at least two-thirds of their shares in this manner, as spelled out in the bailout agreement, has been hanging over the company for months. If the stock exchange offer succeeds, Thornburg will get a break on the notes involved in the bailout, with interest rates lowered from 18 percent to 12 percent, saving approximately $69 million per year. It also will be able to keep the principal payments on its mortgage-backed securities beginning March 2009. If it fails, the interest rate will stay pegged at 18 percent and the principal payments will continue to flow to the bailout investors.

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Santa Fe's Thornburg Mortgage (NYSE:TMA) is a single-family residential mortgage lender focused principally on prime and super-prime borrowers seeking jumbo and super-jumbo adjustable-rate mortgages.