AP
Pimco Buys Thornburg Paper
Friday March 7, 5:55 pm ET
Pimco Buys Thornburg Paper for Undisclosed Sum, Founder Says
NEW YORK (AP) -- U.S. bond giant Pimco has purchased "hundreds of millions" of Thornburg Mortgage Inc. paper in the last few days, Pimco's founder and chief investment officer said Friday.
"We've bought a little bit of the paper, not a lot," William Gross said in a CNBC interview. "We're talking about a few hundreds of millions, I guess, but there's a lot of paper to buy."
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Gross declined to say how much Pimco paid for the paper, but said it was buying it to yield between 9 and 11 percent "on an average life type of basis," assuming there are some defaults and some losses within the structures.
Home-loan lender Thornburg on Friday said there is "substantial doubt" about its ability to continue as a going concern, citing deterioration of prices of mortgage-backed collateral and a liquidity position that is under unprecedented pressure.
"They do have AAA paper, but remember, it's AAA paper that's basically been rated AAA by the services, and we know that it consists of a lot of subprimes and other structures that are trading at 70 to 80 cents on the dollar," Gross said.
A spokeswoman for Thornburg later said that the company is a prime lender with no subprime in its portfolio. No one from Pimco was available to comment further.
"That's a very attractive type of situation. Ultimately, we expect the paper that we're buying to...provide close to double-digit returns," Gross said.
Thornburg's most recent problems began two weeks ago when UBS AG announced that it was writing down the value of securities backed by Alt-A mortgages, a move that decreased the value of similar securities held by Thornburg that it was using as collateral on its borrowing agreements. The company's creditors responded by requiring Thornburg to put up $300 million in additional collateral, which it was able to do using its cash reserves.
But last week, Thornburg was hit by an additional $270 million in margin calls as its collateral fell further, and the company said it wasn't able to meet "the majority" of the new cash requirements.
Thornburg on Thursday was circulating a list of slightly more than $4 billion in alt-A mortgage bonds available for sales as the home-loan lender struggled to raise funds to meet demands from its creditors. They were being offered at a discount of more than 90 cents on the dollar to as low as about 75 cents, said an investor familiar with the matter.
Alt-A loans are made to borrowers with generally strong credit but are loans that lack adequate verification of, for instance, income or assets. This lax paperwork paved the way for aggressive lending to the less creditworthy and emboldened borrowers to exaggerate their financial prowess. Such loans were also a favorite of real-estate investors holding to flip properties for a quick profit.
