By the company's own admission, this may be the last time Thornburg Mortgage Inc. wins a reprieve from its creditors.

The beleaguered Santa Fe, N.M., jumbo lender and real estate investment trust said Tuesday that it may file for bankruptcy protection if it cannot restructure roughly $4 billion of financing by March 31. Though the deadline to replace the facility expired Friday, Thornburg's five lenders agreed to give it two more weeks.

But it is not looking good. Thornburg also said Tuesday that it had hired Kirkland & Ellis LLP and Houlihan Lokey Howard & Zukin Capital Inc. to advise it on the restructuring. And MatlinPatterson Global Advisors LLC, the New York private-equity firm that rescued Thornburg from bankruptcy a year ago with a $1.35 billion financing package, has signaled that it is focused on cutting its losses.

Last week David J. Matlin and Mark R. Patterson resigned from the Thornburg board, citing potential conflicts of interest. And on Tuesday the two surrendered their 120.7 million of common shares, which gave them a 23.7% stake in Thornburg. The investor group led by MatlinPatterson still holds $1.35 billion of the company's debt.

Ronald Greenspan, a senior managing director in FTI Consulting Inc.'s Los Angeles office, said creditors often will resign from board seats if they plan to take more aggressive action as a creditor.

"If they perceive there is limited value in the equity, they want to maximize the recovery on their debt and they don't want any appearance of a conflict," said Greenspan, who has worked on other large mortgage bankruptcies and liquidations, including those of New Century Financial Corp., Ownit Mortgage Solutions and C-Bass LLC.

Suzanne O'Leary Lopez, a spokeswoman for Thornburg, said MatlinPatterson "continues to play a role in the company's restructuring plans as a senior subordinated noteholder and lead investor."

Reached by phone Tuesday, Mark Patterson would not discuss the situation.

In a Securities and Exchange Commission filing, Thornburg said that in addition to filing for protection from creditors under Chapter 11 of the U.S. Bankruptcy code, it is evaluating alternatives including "a consensual restructuring, reorganization or recapitalization."

Lopez said Thornburg also was considering "possibly acquiring a bank or savings and loan" institution.

Greenspan said that if Thornburg goes the bankruptcy route, liquidation would be the likely outcome.

"Very few of the mortgage companies have been able to truly reorganize and emerge from bankruptcy as a going concern," he said.

Thornburg holds $25 billion of mortgage-related assets, including about $5 billion of securities whose financing it has been trying, unsuccessfully, to replace for about a year.

Though the delinquency rates on these assets are relatively low — reflecting Thornburg's affluent borrower base — they do not carry government guarantees and so have been difficult to finance or sell during the credit crunch.

But observers said Tuesday that given the state of the secondary market for this paper, the additional supply from a Thornburg liquidation may not do much damage.

Tom Millon, the president and chief executive officer of Capital Markets Cooperative, a Ponte Vedra Beach, Fla., firm that advises on reducing risk and maximizing profits in capital markets, said that even if Thornburg filed for bankruptcy protection, there would be "no disruption" in the market for distressed jumbo loans.

"There's a huge amount of product out there, so some lucky hedge fund will finally get to do a trade in the jumbo space," he said.

Greenspan said the market will be "probably no more flooded than it is today in that people have products for sale, at the right price.

"The question is how creditors believe you can maximize value, and on your performing loans in the jumbo space, they might decide a hold and sell strategy is better today," he said.

Right now, Greenspan said, "prices for performing loans are substantially below par."

Thornburg said Tuesday that three of its five lenders — JPMorgan Chase & Co., Credit Suisse Group and Royal Bank of Scotland Group PLC — had agreed to extend financing until March 31.

To keep the other two lenders at bay, the company had to make additional concessions.

It struck a forbearance agreement with Citigroup Inc. in which it pledged $626.4 million of mortgage securities as collateral against $1.02 billion in financing due on March 31.

Thornburg also agreed that it owes a deficiency amount of $86.6 million to UBS AG, which in return also extended a forbearance.

Though Thornburg suspended loan originations in the second quarter of last year, Lopez said it retained its origination platform, including technology and underwriting staff, so it could originate loans again when it received financing.

George L. Engelke Jr., the chairman and CEO of Astoria Federal Savings Bank, a Lake Success, N.Y., lender that originated $3 billion of jumbo loans last year, said he had not heard the name Thornburg Mortgage in more than a year.

"They're in financing mode, and if you can't get financing to hold your inventory, you've got a problem," he said.

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