Fitch Expects to Rate TMA's Preferred Stock Issuance 'BB-'

Business Wire, May 25, 2005

NEW YORK -- Fitch Ratings expects to rate Thornburg Mortgage, Inc.'s (TMA) offering of approximately $50 million of 8.0% series C cumulative redeemable preferred stock 'BB-'. TMA's senior unsecured debt rating remains 'BB'. The Rating Outlook is Positive.

TMA's ratings continue to reflect its strong asset quality, improving funding diversity, and solid risk-adjusted capitalization. The company also continues to maintain a low interest rate duration gap on its portfolio of adjustable-rate mortgage assets of 4.4 months. In addition, Fitch believes that TMA, with its weighted average original loan-to-value of 66.4% as of March 31, 2005 for originations, should have some protection in the event that there are regional or local devaluations of single-family residential real estate.

The Positive Rating Outlook reflects the company's continued migration towards a more diverse funding profile. Over the past 18 months, TMA has made strides toward reducing its still meaningful reliance on reverse repurchase agreements for funding. The increased use of instruments such as collateralized debt obligations provide the company with secured funding that is matched from both an interest-rate duration and term perspective. Fitch also views TMA's initial and follow-on issuance of preferred stock as a favorable addition to its capital structure.

Rating concerns focus primarily on TMA's meaningful debt roll-over risk, its largely encumbered balance sheet, and increasing competition in the mortgage origination space. In addition, as short-term interest rates have risen and as the company has increased its expenditure on hedging instruments, the net interest margin, and EBITDA to interest expense metrics have declined consistently over the past eight quarters. Nevertheless, Fitch acknowledges that a portion of the decrease in margin comes from a higher cost of funding on longer term financing instruments, which ultimately benefits the company's funding profile.

The expected offering is a follow-on to Thornburg's $50 million initial offering of series C cumulative redeemable preferred stock, which was completed in March 2005. Similar to the March offering, the new securities will pay dividends at 8.00% per annum. If dividends are in arrears for more than six quarters, which need not be consecutive, preferred holders may elect two additional members to Thornburg's board of directors. The securities are redeemable after a period of five years. Fitch expects proceeds to be used to finance TMA's continued asset growth.

Based in Santa Fe, NM, TMA is among the nation's largest mortgage real estate investment trusts (REIT). The company is focused on underwriting, purchasing, and holding investments in adjustable-rate residential mortgages. TMA originates and purchases adjustable-rate jumbo mortgages backed by single-family residential properties owned by predominantly high quality borrowers. The company is also an originator, as well as purchaser, of mortgage-backed securities from Freddie Mac, Fannie Mae, and a diverse range of private institutions. As of March 31, 2005, TMA had $30.9 billion of assets and $2.0 billion of shareholders' equity.