After the closing bell last night, Thornburg Mortgage, Inc. (NYSE: TMA) managed to report a second-quarter profit, but the firm warned investors that it's in jeopardy of collapse as margin calls continue to roll in. Thornburg said that it covered $219 million of demands for collateral on August 21, and may face another $25.9 million of margin calls. Plus, uncertainty still remains about the outcome of an exchange offer that was meant to pull the New Mexico-based mortgage lender back from the brink of bankruptcy.
The jumbo-loan specialist said it swung to a second-quarter profit of $412.3 million, or 84 cents per share, after swallowing a first-quarter loss of $3.31 billion. During the recently concluded quarter, Thornburg wrote down $209.6 million in mortgage losses, which was offset by a $536.9-million gain from the declining value of a liability. Adjusted income for the period was $22.7 million.
Under the terms of a deal with MatlinPatterson Global Advisers, Thornburg agreed in March to conduct an exchange offer for some preferred stock. The offer expires on September 3, and holders of two-thirds of each of four classes of preferred stock must participate. The company warned that uncertainty about the outcome of the exchange offer, combined with the still-shaky market conditions, "raise substantial doubt about the company's ability to continue as a going concern for the foreseeable future."
Thornburg shares closed Monday at 40 cents, bringing their year-to-date loss to nearly 96%. The stock quickly spiked about 30% (or 12 cents) out of the gate this morning, perhaps due to a rush of short-covering. By 10:00 a.m.. it was trading up 40%.
With the shares trading firmly in penny-stock territory, bearish bettors continued to ramp up their positions on Thornburg in the weeks heading into the earnings report (despite the proverbial "support at zero"). During the latest reporting period, short interest rose by 12.13% to account for more than 7.2% of TMA's float.
On the other hand, option players have little other choice than to play calls, with absolutely no put strikes in existence below TMA's current perch. Over the past 10 trading days, the International Securities Exchange reports that traders have purchased nearly 5 calls to open for every 1 put on the shares. In the October series, there are 28,721 calls and 18,627 puts at the 2.50 strike, which is as close as TMA options get to being "at the money."
Elizabeth Harrow is an analyst and financial writer in the research department at Schaeffer's Investment Research. She is featured in the video series Schaeffer's Daily Q&A on SchaeffersResearch.com.
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