Here's another reason the market got spooked today.
Shareholders Bear Brunt of Thornburg's Pact With Lenders 5:10 PM ET - Dow Jones News
By Aparajita Saha-Bubna Of DOW JONES NEWSWIRES NEW YORK -(Dow Jones)- Wednesday marked the second bailout in a week on Wall Street as Thornburg Mortgage Inc. (TMA), the beleaguered lender and investor of home mortgages, sidestepped potential bankruptcy after its creditors agreed to a ceasefire. Earlier this week, JPMorgan Chase & Co. (JPM) rescued embattled investment bank Bear Stearns Cos. (BSC) by agreeing to buy it for $2 a share. That said, concessions to Thornburg's lenders - including a proposed $1 billion offering of securities that morph into shares, suspension of dividends, and contracts offering Thornburg stock for as little as one cent apiece - come at a steep cost to its equity investors. The company's shares lost about half their value Wednesday, wiping out gains from a day earlier on the preliminary news of the lending pact, to close down $1.48, or 49.7%, to $1.50. So far this year, the stock has fallen 83%. "Common shares will be worth pennies on the dollar as a result of the massive amount of dilution," said one investor at a hedge fund who declined to be identified. "The value of the stock is wiped out." As part of the pact - sketchy details of which were first disclosed late Monday in a filing with the Securities and Exchange Commission - five lenders providing about $5.8 billion in so-called reverse-repurchase lines of credit agreed to freeze additional margin calls through March 2009 and lowered demands for their money back from Thornburg.