Exhibit 10.1

 

Strictly Confidential    Execution

MP/TMA

TERM SHEET FOR PROPOSED FINANCING

March 24, 2008

 

ISSUER:    Thornburg Mortgage, Inc. INVESTMENT AMOUNT:    $1,150,000,000, up to
an additional $200,000,000 contingent upon the extent to which the Tender Offer
referred to below is accepted (the “Investment Amount Increase”). INVESTMENT:   

•       Senior Subordinated Secured Notes (the “Notes”);

 

•       detachable Warrants (the “Warrants”) for the purchase of up to 48% of
the fully-diluted shares of common stock, par value $0.01 per share, of the
Issuer (the “Common Stock”) after giving effect to such issuance and all
anti-dilution adjustments under all existing instruments and agreements; and

 

•       prepaid cash-settled agreement relating to the Issuer’s and its
subsidiaries’ portfolio of mortgages and other assets constituting the
Collateral (as defined below) providing for a payment of the excess of the
principal of such portfolio over the related debt as set forth below
(collectively, the “Investment”).

INVESTORS:    MatlinPatterson Global Opportunities Partners III L.P., a Delaware
limited partnership, MatlinPatterson Global Opportunities Partners (Cayman) III
L.P., a Cayman limited partnership and/or one or more entities created by or
affiliated with either of the foregoing partnerships (collectively,
“MatlinPatterson”) - $450,000,000; other investors reasonably acceptable to
MatlinPatterson – TBD. SENIOR SUBORDINATED SECURED NOTES

Security:

   $1,150,000,000 aggregate principal amount of Notes, plus up to an additional
$200,000,000 upon the occurrence of the Investment Amount Increase.

Purchase Price:

   $1,050,000,000, plus up to an additional $200,000,000 upon the occurrence of
the Investment Amount Increase.

Maturity:

   March 31, 2015

Interest:

   The Notes will bear interest, payable in cash semi-annually in arrears, at a
rate equal to 18% per annum, subject to the Interest Rate Change upon the
occurrence of the Triggering Event and the issuance of the Additional Warrants
(as defined below).

Interest Payment Dates:

   March 31 and September 30, commencing September 30, 2008.

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Ranking:

  

The Notes will be general senior subordinated secured obligations of the Issuer
and (without giving effect to their collateral position):

 

•        are subordinated in right of payment to all existing senior debt of the
Issuer;

 

•        rank equally in right of payment to any future senior subordinated debt
of the Issuer; and

 

•        are senior in right of payment to all existing and future subordinated
debt of the Issuer.

Guarantees:

   By each domestic subsidiary of the Issuer; guarantees shall be subordinated
only if and to the extent necessary pursuant to the terms of existing
agreements.

Collateral:

   Secured by as senior a lien as possible on any available assets of the Issuer
and its subsidiaries pursuant to the terms of existing agreements.

Mandatory Offers to Purchase:

   Change of control put at 101%. Put for certain asset dispositions at 100%.

Interest Rate Change:

   Upon the occurrence of the Triggering Event and the issuance of the
Additional Warrants, interest payable on the Notes will decrease to 12% per
annum, payable in cash semi-annually in arrears on each March 31 and September
30 (the “Interest Rate Change”). All unpaid interest accrued at a rate in excess
of 12% per annum at the time of the Interest Rate Change shall be cancelled.

Covenants:

   Customary restrictive covenants for secured bond financings with customary
exceptions, including, without limitation, limitations on the Issuer’s and its
subsidiaries’ ability to incur, assume or guarantee indebtedness; issue
redeemable stock and preferred stock; pay dividends or distributions or redeem
or repurchase capital stock; prepay, redeem or repurchase debt that is junior in
right of payment to the notes; make loans, investments and capital expenditures;
incur liens; layer indebtedness; restrict dividends, loans or asset transfers
from our subsidiaries; sell or otherwise dispose of assets, including capital
stock of subsidiaries; consolidate or merge with or into, or sell substantially
all of our assets to, another person; enter into transactions with affiliates;
and enter into new lines of business. Subject to satisfactory completion of a
due diligence investigation by the Investors, the foregoing restrictive
covenants will be as consistent as practicable with the covenants contained in
the indenture governing the Senior Notes of the Issuer due May 15, 2013. In
addition, covenant limiting the Issuer’s and its subsidiaries’ ability to incur,
assume or guarantee any senior indebtedness. Lastly, the Issuer and the
Investors will covenant to treat the Notes as debt for U.S. federal income tax
purposes.

Representations and Warranties:

  

Customary representations and warranties provided to the initial purchasers of
secured bond financings.

 

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Events of Default:

   Customary events for secured bond financings to be agreed upon, with grace
periods and materiality thresholds to be agreed upon where appropriate,
including, without limitation, nonpayment of principal or interest, violation of
covenants, incorrectness of representations and warranties in any material
respect, cross default and cross acceleration, bankruptcy, material judgments
and the early expiration or termination of the Override Agreement.

Transfer & Registration Rights:

   The holders of the Notes will receive customary rights to an exchange offer
and/or shelf registration rights with respect to the Notes, including the
requirement to have consummated an exchange offer or to have an effective resale
shelf registration statement within 90 days of issuance.

Governing Law:

   New York PREPAID CASH-SETTLED AGREEMENT    The Issuer and the Investors shall
enter into a 7-year prepaid cash-settled agreement (the “Prepaid Agreement”)
whereby the Investors shall pay the Issuer $100,000,000 and in return the
Investors shall receive, commencing in April 2009, a payment in the amount of
the excess of (x) the principal payments on the portfolio of mortgages and other
assets constituting Collateral (as defined in the Override Agreement) received
prior to the maturity of the Prepaid Agreement and mark-to-market valuation of
the Collateral at the maturity of the Prepaid Agreement over the (y) principal
amount of the obligation under the Financing Agreement (as defined in the
Override Agreement) relating to such Collateral. The Prepaid Agreement may
consist of one or more agreements covering all or portions of the Collateral.
The Issuer shall make payments on such Prepaid Agreement only to the extent that
any amounts in respect of principal on the Collateral are released to the Issuer
or its subsidiaries under the Financing Agreement and upon maturity of the
Prepaid Agreement. The Prepaid Agreement shall be subject to an early
termination before the 7th year anniversary at the Issuer’s option upon the
occurrence of the Trigger Event and upon the Issuer issuing to the Investors
additional warrants (the “Additional Warrants”) to purchase such number of
shares of Common Stock such that the Initial Warrants and the Additional
Warrants collectively will be exercisable for shares of Common Stock that
constitute 90% of the shares of Common Stock outstanding on a fully diluted
basis (after giving effect to all anti-dilution adjustments under all existing
instruments and agreements). The Investors shall have no liability under the
Prepaid Agreement in the event the excess of (x) over (y) above is negative,
other than to the extent of the initial $100,000,000 payment. WARRANTS   

Warrants:

   Warrants (the “Initial Warrants”) to purchase approximately 48% of the shares
of Common Stock outstanding on a fully diluted basis after giving effect to such
issuance and all anti-dilution adjustments under all existing instruments and
agreements.

 

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Exercise Price:

   $0.01 per share.

Exercise Period:

   From the date of issuance to 5:00 p.m., New York City time, on March 31,
2015.

Antidilution Adjustments:

   The Exercise Price and number of shares of Common Stock issuable upon
exercise of each Warrant are subject to adjustment in the event of distributions
of Common Stock, subdivisions, splits and combinations of Common Stock, any cash
distributions, distributions with respect to Common Stock other than in Common
Stock or in cash and certain issuer tender offers for Common Stock.

Other:

   The Warrants will be issued in a private placement transaction and, as such,
will not be registered under the Securities Act of 1933, as amended. The holders
of the Warrants will receive customary demand, piggyback and shelf registration
rights with respect to the shares of Common Stock underlying the Warrants,
including the requirement to have an effective shelf registration statement
within 180 days of closing. MatlinPatterson and certain other holders of
warrants will each have the right to designate directors of the Issuer.

Listing:

   The Issuer will apply to list the shares of Common Stock issuable upon
exercise of the Warrant on the NYSE.

Governing Law:

   New York USE OF PROCEEDS:    As set forth on Schedule I TRIGGERING EVENT:   
The occurrence of both of the following events shall be the “Triggering Event.”

Shareholder Vote:

   The Issuer shall hold a shareholder vote as promptly as practicable but no
later than by June 15, 2008 at which its shareholders shall approve, among other
things, amendments to its Articles of Incorporation to increase the number of
authorized shares of Common Stock. Outside Maryland counsel to the Issuer shall
opine as to the effectiveness of the foregoing.

Tender Offer:

   The Issuer will complete, as promptly as practicable, self-tenders for at
least 90% of the aggregate liquidation preference of its outstanding preferred
stock and at least 66 2/3% of the aggregate liquidation preference of each
series of its outstanding preferred stock, at a price of $5 per $25 of
liquidation value plus, if the Shareholder Vote is obtained, Warrants to
purchase an aggregate of 5% of the Common Stock outstanding on a fully diluted
basis and, if the Shareholder Vote is not obtained, alternative consideration.
The tender offers will be combined with consent solicitations to delete
restrictive covenants, including without limitation voting and dividend blocker
provisions in the Articles Supplementary for such series of preferred stock.

 

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ADDITIONAL COVENANTS:

  

NYSE Shareholder Vote:

   By March 31, 2008, the Issuer shall have obtained the shareholder approval
required by Section 312.03 of the New York Stock Exchange’s (the “NYSE’s”)
Listed Company Manual or shall comply with all the requirements of the exception
set forth in Section 312.05 of the NYSE’s Listed Company Manual.

Board Action:

   The Issuer’s Board of Directors shall waive any limitations on ownership of
Common Stock under Maryland law, under the Issuer’s Articles of Incorporation
and under the Issuer’s Shareholder Rights Agreement. Outside Maryland counsel to
the Issuer shall opine as to the effectiveness of the foregoing (counsel need
not opine as to the adequacy of the evidence submitted pursuant to Article 10(E)
of the Issuer’s Articles of Incorporation).

Management Agreement:

   Waiver of Change of Control put right by Thornburg Mortgage Advisory
Corporation.

Hart-Scott-Rodino Antitrust Improvements Act of 1976:

   The Issuer and the Investors shall make all necessary filings under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, as promptly as
practicable.

Opinions:

   Counsel to the Issuer shall provide customary opinions relating to the
Investment. CONFIDENTIALITY:    This Term Sheet, as well as the existence,
substance and status of discussions between the parties concerning the
transactions contemplated hereby, will be kept strictly confidential and its
contents will remain strictly confidential and will not be disclosed to any
person, whether orally or in writing, other than legal, accounting and financial
advisors of the parties unless and until the parties agree upon the language and
timing of an announcement. TERMINATION FEE:    If MatlinPatterson and the
Company do not enter into enter definitive Documents with respect to the
Investment by March 27, 2008, then the Company shall pay to MatlinPatterson by
two business days thereafter the amount of (i) $18,000,000 plus (ii) the
out-of-pocket expenses of MatlinPatterson with respect to the negotiation of
this Term Sheet and the definitive Documents, including the fees and expenses of
its legal, financial and tax advisors. TIMING OF TRANSACTION:    MatlinPatterson
and the Issuer acknowledge and agree, upon the signing of this Term Sheet, to
prepare and negotiate in good faith the legal documents necessary to make the
Investment including but not limited to, an indenture governing the Notes, the
Notes, a Warrant Agreement with respect to the Warrants, the Warrants, and the
Prepaid Agreement (collectively, the “Documents”).

 

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CONDITIONS PRECEDENT:   

The Investment by the Investors is subject to (i) the preparation, negotiation
and execution of definitive Documents, which definitive Documents shall contain
customary representations, warranties, and covenants in form and substance
acceptable to the Investors, (ii) the successful negotiation of an equity
investment in Thornburg Mortgage Advisory Corp. by the Investors with certain
consent rights, (iii) the absence of any material adverse change in the business
condition, financial or otherwise, of the Issuer and (iv) the performance by the
Issuer and its affiliates of the Additional Covenants and their other
obligations hereunder.

 

The Investment by MatlinPatterson is further subject to an aggregate Investment
by other Investors of at least $700,000,000, or up to $900,000,000 upon the
occurrence of the Investment Amount Increase.

 

Issuer’s acceptance of the Investment is subject to the preparation, negotiation
and execution of definitive Documents in form and substance acceptable to the
Issuer.

 

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This Term Sheet does not constitute an offer to sell or the solicitation of an
offer to buy securities. This Term Sheet constitutes a binding commitment by the
parties hereto, subject, except in the case of the sections above entitled
“Confidentiality” and “Termination Fee”, to the fulfillment of the Conditions
Precedent.

This Term Sheet supersedes all prior discussions and agreements between the
Parties with respect to the subject matter hereof, and contains the sole and
entire agreement between the Parties hereto with respect to the matters referred
to immediately above hereof.

The parties, being fully aware of the content and legal implications of this
Term Sheet, have executed this Term Sheet as of the date set forth on the first
page of this Term Sheet.

 

MATLINPATTERSON GLOBAL OPPORTUNITIES PARTNERS III L.P.

BY: MATLINPATTERSON GLOBAL ADVISOR LLC, as Investment Manager

By:

 

/s/ David J. Matlin

Name:

 

David J. Matlin

Title:

 

Chief Executive Officer

MATLINPATTERSON GLOBAL OPPORTUNITIES PARTNERS (CAYMAN) III L.P.

BY: MATLINPATTERSON GLOBAL ADVISERS LLC, as Investment Manager

By:

 

/s/ David J. Matlin

Name:

 

David J. Matlin

Title:

 

Chief Executive Officer

THORNBURG MORTGAGE INC.

By:

 

/s/ Larry A. Goldstone

Name:

 

Larry A. Goldstone

Title:

 

President & Chief Executive Officer

THORNBURG MORTGAGE ADVISORY CORPORATION

By:

 

/s/ Larry A. Goldstone

Name:

 

Larry A. Goldstone

Title:

 

Managing Director

 

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Schedule I

Sources & Uses of Proceeds

(in millions)

 

Sources

       

Uses

           Margin Calls on Repo and Auction Swaps with Counterparties    $ 530
      Satisfaction of Deficiencies    $ 50 - $60       Liquidity Fund    $ 350
      Tender Offer    $ 200

Proceeds from Investment

   $ 1,350    Working Capital    $ 210 - $220                     

Total

   $ 1,350