Thornburg Mortgage Raises $1.35 Billion Through Private Placement of Senior Subordinated...

Thornburg Mortgage Raises $1.35 Billion Through Private Placement of Senior Subordinated Secured Notes and Warrants

SANTA FE, N.M.--(Business Wire)--
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 receive up to an additional $200 million
aggregate principal amount of senior subordinated secured notes and
related detachable warrants to the extent that the escrowed funds are
used to fund the tender offer and the annual interest payable on the
notes will decrease to 12%.

The proceeds of this private placement will be used to satisfy the
outstanding margin calls owed to the reverse repurchase agreement
counterparties, a key contingency of the Override Agreement, as
amended, that the company originally announced on March 19, 2008. The
company entered into this agreement with its five remaining reverse
repurchase agreement counterparties and their affiliates pursuant to
which the counterparties will provide approximately $5.8 billion of
reverse repurchase agreement financing. The percentages referenced in
the immediately preceding paragraph regarding fully diluted equity
after giving effect to the issuance of warrants reflect warrants to be
received by the counterparties in connection with the Override
Agreement, as previously discussed in the company's press releases
issued earlier this month.

The company will conduct a tender offer for all of its outstanding
preferred stock at a price of $5 per $25 of liquidation value, plus,
upon shareholder approval of additional authorized shares, warrants to
purchase an aggregate of 5% of the company's common stock outstanding
on a fully diluted basis or, if shareholder approval is not obtained,
alternative consideration. To the extent that the escrowed funds are
not used to purchase the preferred shares that are tendered, unused
escrow funds will be returned to the investors. Additionally, the
company has suspended dividend payments on all outstanding series of
preferred stock.

The company is required to seek shareholder approval to amend the
company's charter to increase the number of shares of capital stock
the company is authorized to issue. The company will hold its annual
shareholder meeting as promptly as practicable, but no later than June
15, 2008, at which time its shareholders will vote on, among other
things, amendments to the company's Articles of Incorporation to
increase the number of authorized shares of capital stock to at least
4 billion shares.

Upon completion of all of the transactions referenced above,
common shareholders will hold approximately 5.5% of common stock on a
fully diluted basis. The company has agreed that, upon clearance of
regulatory matters, if any, certain investors will have the right to
designate up to five members of the company's ten-member board. Five
of the company's current directors, yet to be determined, will resign
to make positions available for the directors to be designated by such
investors.

The issuance of the warrants in connection with the private
placement described above, in connection with the tender offer to be
conducted as described above and pursuant to the Override Agreement as
previously discussed in the company's press releases issued earlier
this month would normally require approval of the company's
shareholders in accordance with the shareholder approval policy of the
New York Stock Exchange. However, after a careful review of the facts,
the members of the Audit Committee of Thornburg Mortgage's Board of
Directors determined that any delay caused by securing shareholder
approval prior to the issuance of these securities would seriously
jeopardize the financial viability of the company. Pursuant to an
exception in the New York Stock Exchange's shareholder approval
policy, the company's audit committee members approved the company's
omission to seek the shareholder approval that would otherwise have
been required under that policy. The company has requested approval
from the New York Stock Exchange for the use of the exception and in
reliance upon this exception, has agreed to mail a letter to all
shareholders notifying them of its intention to issue the securities
without prior shareholder approval.

Neither the sale or the issuance of the senior subordinated
secured notes, the warrants, the participations or the shares of
common stock underlying the warrants in this transaction have been
registered under the Securities Act of 1933, as amended, or applicable
state securities laws and will not be offered, sold or transferred in
the United States absent registration or an exemption from
registration. The company has agreed to file a resale registration
statement on Form S-3 and has agreed to take steps to cause such
registration statement to be declared effective within 180 days after
the closing of the transaction for purposes of registering the resale
by the investors of the shares of common stock underlying the
warrants. The company has also agreed to file a registration statement
to allow the senior subordinated secured notes to be exchanged for
registered notes and guarantees having substantially the same terms as
the notes or register the senior subordinated secured notes for
resale.

In connection with the tender offer, the company will file a
tender offer statement on Schedule TO and related documents with the
SEC. We urge security holders to read these materials when they become
available because they will contain important information which should
be read carefully before any decision is made with respect to the
offer. When the documents are filed with the SEC, they will be
available for free at the SEC's web site at www.sec.gov and from the
company, Suzanne O'Leary Lopez, 505-989-1900. This announcement does
not constitute an offer to sell any of the warrants to be issued in
the tender offer, which may be made only pursuant to the definitive
tender offer documents.

The statements in this press release that are not historical facts
are forward-looking statements within the meaning of the federal
securities laws. These forward-looking statements are based on
management's current expectations and are subject to uncertainty and
changes in circumstance due to a number of factors, including but not
limited to: general economic conditions; ongoing volatility in the
mortgage and mortgage-backed securities industry; the company's
ability to meet the ongoing conditions of the Override Agreement; the
company's ability to obtain approval of use of the financial distress
exemption from the New York Stock Exchange; the company's ability to
obtain shareholder approval of an increase in authorized shares;
changes in market prices for mortgage securities, changes in interest
rates, the availability of ARM securities and loans for acquisition
and other risk factors discussed in the company's SEC reports,
including its most recent annual report on Form 10-K/A and its
Registration Statement on Form S-3. These forward-looking statements
speak only as of the date on which they are made and except as
required by law, the company does not intend to update such statements
to reflect events or circumstances arising after such date.

Thornburg Mortgage, Inc., Santa Fe
Clay Simmons or Suzanne O'Leary Lopez, 505-989-1900
ir@thornburgmortgage.com

Copyright Business Wire 2008