March 25 (Bloomberg) -- Thornburg Mortgage Inc., the ``jumbo'' mortgage lender trying to stave off bankruptcy, rose by more than a third after disclosing plans to raise $1.35 billion.

The rescue plan gives new investors debt that pays 18 percent and the chance to own a 90 percent stake, according to terms of the private placement outlined by Santa Fe, New Mexico- based Thornburg in a statement today. Thornburg is asking the New York Stock Exchange for permission to issue new securities without a shareholder vote because delay ``would seriously jeopardize the financial viability of the company.''

Thornburg needs to raise almost $1 billion this week to meet margin calls from its bankers. The lender had tumbled 95 percent in 12 months as managers struggled to raise funds amid the worst housing market in a quarter of a century. With the deadline looming, Thornburg had to accept an interest rate about 4 percentage points higher than the lowest-rated companies.

``It's been a disaster for Thornburg and their shareholders,'' said Gary Townsend of Hill-Townsend Capital in Chevy Chase, Maryland. ``With the recapitalization, there's obviously some hope now that the value will go up.''

The lender gained 46 cents, or 36 percent, to $1.73 at 4:15 p.m. in New York trading and sold for as much as $1.94. Thornburg stock fetched more than $28 last June.

New Investors

MatlinPatterson Global Opportunities Partners III agreed to buy $450 million of the notes, Thornburg said in a separate filing today. Mark Patterson, chairman and co-founder of the company that invests in bankrupt and distressed companies, said in an interview that current prices on distressed debt makes this a ``great buying time at low values.''

The sale includes senior subordinated secured notes due to mature in 2015. Terms call for an initial interest rate of 18 percent, falling to 12 percent later if certain conditions are met. The investors also get warrants to buy common stock for a penny a share.

``Thornburg has a tight time window and you have to take measures you normally wouldn't employ,'' said Keith Gumbinger, vice president of HSH Associates, a mortgage industry research firm in Pompton Plains, New Jersey. ``An 18 percent yield attracts instant attention.''

In return, five lenders agreed to provide about $5.8 billion of financing, curtail their margin requirements and suspend further margin calls, the statement said.

Thornburg must pay a termination fee of $18 million plus expenses if definitive documents aren't signed by March 27.

Payouts Canceled

Thornburg agreed to suspend preferred dividends, following an earlier decision to cancel the payout on the common stock. The accord includes a tender offer for at least 90 percent of the preferred stock, priced at $5 per $25 of liquidation value plus warrants equal to 5 percent of the lender's common shares.

The latter could reduce the stake of the new investors to 85 percent.

As part of the agreement, MatlinPatterson is paying $100 million to Thornburg in return for payments starting in April 2009 tied to the company's mortgage holdings, according to the filing.

Today's transaction replaces the sale of 12 percent convertible notes announced earlier this month, Thornburg said.

``We view the new financing as more dilutive to the existing common shareholder than the initial convertible plan,'' Credit Suisse analyst Moshe Orenbuch said in a note today. ``The alternative to not completing the financing is bankruptcy.''

MBIA Inc., the largest bond insurer, had to pay 14 percent to raise $1 billion in January to bolster its capital.

Cash Shortage

Thornburg has run short on cash as falling home sales cut into demand and fixed-income investors, burned by losses on investments linked to subprime home loans, avoided the company's securities. The declining value of Thornburg's holdings triggered margin calls that pushed the company to the brink of failure.

Thornburg avoided subprime loans, which have the highest default rate. Instead, the lender specialized in so-called jumbo mortgages of more than $417,000, which typically were used to buy more expensive homes by people with strong credit records. Until recently, such loans were too big to qualify for purchase by government-sponsored entities such as Fannie Mae, which limited their appeal to investors.

Thornburg's only corporate bond debt is a $305 million 8 percent note due in 2013 now trading at 55 cents on the dollar according to Trace, the bond price reporting service of the Financial Industry Regulatory Authority. The yield at that price would be 24 percent compared with 32 percent yesterday.

Distressed debt is defined as a bond trading at more than 1,000 basis points, or 10 percentage points, more than comparable Treasuries. That means five-year debt yielding more that 12.6 percent would qualify. The last bond coupon above 10 percent sold in dollars or euros was a $100 million 13.75 percent coupon loan participation note sold March 20 by Siberian Services Co., an oil-field services company. The note is unrated.

To contact the reporter on this story: David Mildenberg in Charlotte, North Carolina at dmildenberg@bloomberg.net

Last Updated: March 25, 2008 17:34 EDT