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Rating Action:

MOODY'S ASSIGNS A PRIME-1 RATING TO THORNBURG MORTGAGE CAPITAL RESOURCES LLC SECURED LIQUIDITY NOTE PROGRAM

05 Jul 2004
MOODY'S ASSIGNS A PRIME-1 RATING TO THORNBURG MORTGAGE CAPITAL RESOURCES LLC SECURED LIQUIDITY NOTE PROGRAM

Program Authorized to Issue up to $5 Billion of ABCP

New York, July 05, 2004 -- Moody's has assigned a Prime-1 rating to Thornburg Mortgage Capital Resources, LLC, ("TMCR") a new asset-backed commercial paper program sponsored by Thornburg Mortgage, Inc. ("Thornburg," Ba2, negative outlook). TMCR will issue secured liquidity notes ("SLNs") and use the proceeds to invest in repurchase agreements collateralized by Agency-backed and Aaa-rated private label adjustable rate mortgage securities ("ARMS"). Thornburg will act as program administrator. Deutsche Bank Trust Company Americas (A1/Prime-1/C) will act as collateral agent and issuing and paying agent. TMCR is authorized to issue up to $5 billion of extendible ABCP.

The Prime-1 rating is based primarily on:

(1) The credit quality of the Agency-backed and Aaa-rated private label ARMS backed by prime adjustable rate mortgages provided as collateral under the repurchase agreements;

(2) Liquidity provided by issuing SLNs match-funded to the scheduled maturity of the repurchase agreement, with the ability to extend the note maturity for an additional 10 days to sell the collateral if payment to repurchase the collateral is not received;

(3) Credit enhancement, provided by overcollateralization, sized to cover the market value risk of liquidating the collateral over a 10-day period;

(4) The capabilities of Thornburg as administrator;

(5) The capabilities of Deutsche Bank Trust Company Americas as issuing and paying agent and collateral agent.

Program Overview

TMCR has been established to fund a portion of Thornburg's portfolio of Agency-backed and private label mortgage-backed securities. That portfolio is currently largely funded by using repurchase commitments with commercial banks, investment banks, and other financial firms. While there is an initial sale of the collateral to an intermediary special purpose vehicle, TMCR will essentially appear to Thornburg as an additional repurchase counterparty. Financially and operationally, TMCR is a diversified source of funding operating in a fashion identical to the firm's existing sources of funding.

SLNs Match Fund Collateralized Repurchase Agreements

Thornburg sells collateral to Thornburg Mortgage Depositor, LLC ("TMD"). TMD finances these purchases by entering into repurchase agreements with TMCR. Under the terms of the repurchase agreement, the collateral posted under the repurchase agreement must equal to the amount of funds provided by TMCR plus an additional amount to provide credit enhancement at levels reviewed by Moody's and deemed consistent with the Prime-1 rating. All collateral will consist of adjustable rate (with an initial fixed rate period of up to 72 months) mortgage securities either guaranteed by FNMA, GNMA or FHLMC, or rated Aaa or the equivalent by one or more rating agency. The repurchase price will be calculated to cover the face value of the maturing extendible commercial notes issued to fund the collateral plus program fees and expenses. The repurchase date will be set to match the expected maturity of the SLNs.

Under the repurchase agreement, if TMD does not repurchase the securities on the expected maturity, the SLNs are extended for up to ten days at an interest rate equal to LIBOR plus 25 basis points. If TMD does not repurchase the securities over the next four days, TMCR will sell the collateral and repay the extended notes on or before the last day of the extension period. The scheduled maturity of the SLNs must be under 250 days, and the final maturity of the notes if extended will be 260 days or less.

Liquidity and Credit Enhancement

Liquidity is provided first by the requirement that TMD, the seller under the repurchase agreement, repurchase the securities on the expected maturity date at a price sufficient to repay the maturing SLNs. If repurchase does not occur, liquidity is provided by extending the maturity of the notes by up to ten days. This period is sufficient to correct any problems with repurchase, or, ultimately, to sell the securities in the market for cash proceeds sufficient to repay investors.

There is little credit risk in the Agency-backed ARM securities and Aaa-rated private label ARM securities that serve as collateral. Investors are subject to market value risk if these securities have to be sold. The collateral is marked to market daily using a third-party pricing service reviewed by Moody's. If the collateral value is less than the face value of the notes at their final maturity plus the required enhancement, the seller has four days to correct the situation by providing additional collateral. If the required overcollateralization levels are not restored after four days, the collateral will be sold over the next five days. Moody's has reviewed the overcollateralization levels required in the transaction and believe they are sufficient to cover the market value risk in the securities over this cure and liquidation period to a Prime-1 level. In particular, Moody's examined the likelihood that the proceeds from the sale of the collateral would be sufficient to repay the maturing notes, including principal and all interest to the maximum extended maturity date of the SLNs.

If extended SLNs are outstanding for a continuous period of 20 days, or there is a bankruptcy of Thornburg, then the program will wind down.

Operational Risk

Thornburg is the administrator of TMCR. Moody's is familiar with Thornburg from reviewing their term mortgage securitizations and believes that Thornburg is capable of managing TMCR in a manner consistent with the Prime-1 rating assigned. As noted, operationally TMCR is very similar to the funding Thornburg currently manages through repurchase agreements with other parties.

Thornburg also has a Moody's senior unsecured corporate rating of Ba2 (negative outlook), which is lower than the typical commercial bank program administrator. In order to mitigate the potential for operational risk, Deutsche Bank Trust Company Americas, as collateral agent, has agreed to provide additional services not normally provided by a collateral agent with respect to reviewing the eligibility of the collateral and with respect to the sale of the securities if required after a program default.

Thornburg Mortgage, Inc.

Thornburg, founded in 1993, is a single-family residential mortgage lender that originates, acquires and retains investments in adjustable and variable rate mortgage assets. Thornburg is organized as an externally advised REIT, and is managed under a management agreement with Thornburg Mortgage Advisory Corporation, both based in Santa Fe, NM.

For more information visit Moody's web site, www.moodys.com.

New York
Claire Robinson
Managing Director
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Everett Rutan
Senior Vice President
Structured Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
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