Redwood Trust Prices $85.0 Million Senior Notes Offering

Rhea-AI Summary

Redwood Trust has announced an underwritten public offering of $85 million in senior notes, with a 9.00% interest rate due in 2029, and a 30-day option for underwriters to purchase an additional $12.75 million. The offering is set to close on June 18, 2024, pending certain conditions. The notes are expected to trade on the NYSE under the symbol RWTO, and have received a BBB rating from Egan-Jones. The proceeds will be used for general corporate purposes, including funding business activities and repaying existing debt. Interest payments will be quarterly, starting September 1, 2024, and the notes will mature on September 1, 2029.

Positive

• Offering of $85 million in senior notes shows investor confidence.
• Interest rate of 9.00% is attractive for investors.
• Investment-grade rating of BBB from Egan-Jones.
• Proceeds will be used for strategic acquisitions and investments.
• Listing on NYSE under the symbol RWTO expected to increase visibility.

Negative

• High interest rate of 9.00% could increase debt servicing costs.
• Potential shareholder dilution with a 30-day option for underwriters to purchase an additional $12.75 million.
• Use of proceeds for debt repayment indicates existing financial burdens.
• Senior unsecured obligations add to company's liabilities.
• Possible risks in meeting closing conditions by June 18, 2024.

Insights

Financial Analyst

Redwood Trust's recent pricing of $85 million in senior notes, with an over-allotment option of $12.75 million, signals a significant capital-raising activity. The notes carry a relatively high interest rate of 9% and are rated BBB by Egan-Jones, indicating they are investment grade but carry moderate risk. This issuance can support Redwood’s various strategic initiatives, including potential acquisitions and investment activities, as well as the repayment of existing debt, which may positively affect their balance sheet.

One key point to consider is the 9% interest rate, which is noticeably high. For Redwood, sustaining such an interest payout means they need to allocate significant cash flow towards interest payments, which could constrain their liquidity. However, the ability to raise funds at this rate while maintaining an investment-grade rating reflects market confidence in Redwood's creditworthiness despite the current economic conditions.

The notes' maturity in 2029 and the option for early redemption starting in 2026 provide Redwood with flexibility to manage their debt load strategically if conditions become more favorable or if they generate enough cash flow to repay early. Retail investors should note that the notes being senior unsecured obligations means they have a higher claim than other subordinated debt but still carry more risk than secured debt.

Market Research Analyst

This issuance has broader implications for the market and Redwood's positioning. At a macro level, Redwood’s decision to leverage debt to this extent could indicate their anticipation of growth opportunities, such as expanding their mortgage banking businesses or strategic acquisitions. Such moves are often aimed at capitalizing on favorable market conditions or gaining a competitive edge.

From an investor's perspective, listing the notes on the New York Stock Exchange under the symbol RWTO adds an element of liquidity and accessibility. It also suggests Redwood's confidence in investor appetite for debt instruments, which are often favorably viewed for their predictable returns, especially in the current low-interest environment.

Retail investors should watch for market reactions post-listing. Elevated trading volumes and price stability would indicate strong market acceptance, while any volatility could reflect investor apprehension. Redwood’s strategic use of these proceeds will be pivotal in determining the long-term impact and monitoring their allocation towards high-yielding investments versus debt repayment will offer further insights.

MILL VALLEY, Calif.--(BUSINESS WIRE)-- Redwood Trust, Inc. (NYSE: RWT; “Redwood” or the “Company”) today announced the pricing of an underwritten public offering of $85,000,000 aggregate principal amount of its 9.00% senior notes due 2029 (the “Notes”). In connection with the offering, Redwood granted the underwriters a 30-day option to purchase up to an additional $12,750,000 aggregate principal amount of Notes, to cover over-allotments. The offering is expected to close on June 18, 2024, subject to the satisfaction of certain closing conditions.

Redwood intends to apply to list the Notes on the New York Stock Exchange under the symbol “RWTO” and, if the application is approved, trading of the Notes on the New York Stock Exchange is expected to begin within 30 days after the Notes are first issued. The Notes have received an investment grade rating of BBB from Egan-Jones Ratings Company, an independent, unaffiliated rating agency.

Redwood intends to use the net proceeds from the offering for general corporate purposes, which may include (i) funding of Redwood’s business and investment activity, which may include funding Redwood’s residential and business purpose lending mortgage banking businesses, acquiring mortgage-backed securities for Redwood’s investment portfolio, funding other long-term portfolio investments, and funding strategic acquisitions and investments and/or (ii) the repayment of existing indebtedness, which may include the repurchase or repayment of a portion of the 5.75% exchangeable senior notes due 2025 issued by one of its subsidiaries or Redwood’s 7.75% convertible senior notes due 2027.

The Notes will be senior unsecured obligations of Redwood. The Notes will bear interest at a rate equal to 9.00% per year, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, beginning on September 1, 2024. The Notes will mature on September 1, 2029. The Notes will be issued in minimum denominations of $25 and integral multiples of $25 in excess thereof or in units.

Redwood will have the right to redeem the Notes, in whole or in part, at its option at any time on or after September 1, 2026 at a redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. Upon the occurrence of a change of control, Redwood will be required to make an offer to repurchase all outstanding Notes at a price equal to 101% of the principal amount of the Notes, plus accrued and unpaid interest to, but excluding, the repurchase date.

Morgan Stanley & Co. LLC, Goldman Sachs & Co. LLC, RBC Capital Markets, LLC, Wells Fargo Securities, LLC, Keefe, Bruyette & Woods, Inc. and Piper Sandler & Co., are acting as joint book-running managers for the proposed offering. Citizens JMP Securities, LLC is acting as co-manager for the proposed offering.

The public offering will be made pursuant to an automatic shelf registration statement on Form S-3 that was filed by Redwood with the Securities and Exchange Commission (“SEC”) and became effective on March 4, 2022. A preliminary prospectus supplement and accompanying prospectus relating to and describing the terms of the offering have been filed with the SEC and are available on the SEC’s website at www.sec.gov. Copies of the preliminary prospectus supplement and accompanying prospectus may be obtained by contacting:

Morgan Stanley & Co. LLC
180 Varick Street
New York, NY 10014
Attention: Prospectus Department
Or by telephone: (866) 718-1649
Or by email: prospectus@morganstanley.com

Goldman Sachs & Co. LLC
Attention: Prospectus Department
200 West Street
New York, NY 10282
Or by telephone: 866-471-2526
Or by email: prospectus-ny@ny.email.gs.com

RBC Capital Markets, LLC
Attention: Transaction Management
Brookfield Place
200 Vesey Street, 8th Floor
New York, NY 10281-8098
Or by telephone: 866-375-6829
Or by email: rbcnyfixedincomeprospectus@rbccm.com

Wells Fargo Securities, LLC
608 2nd Avenue South, Suite 1000
Minneapolis, MN 55402
Attention: WFS Customer Service
Or by telephone: (800) 645-3751
Or by email: wfscustomerservice@wellsfargo.com

Keefe, Bruyette & Woods, Inc.
Attention: Capital Markets
787 Seventh Avenue
4th Floor
New York, NY 10019
Or by telephone: 800-966-1559

Piper Sandler & Co.
Attention: Debt Capital Markets
1251 Avenue of the Americas, 6th Floor
New York, NY 10020
Or by email: fsg-dcm@psc.com

This announcement shall not constitute an offer to sell or a solicitation of an offer to buy these securities, nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to the registration or qualification under the securities laws of any such state or jurisdiction.

About Redwood Trust

Redwood Trust, Inc. (NYSE: RWT) is a specialty finance company focused on several distinct areas of housing credit where we provide liquidity to growing segments of the U.S. housing market not well served by government programs. We deliver customized housing credit investments to a diverse mix of investors, through our best-in-class securitization platforms, whole-loan distribution activities, and our publicly traded shares. We operate our business in three segments: Residential Consumer Mortgage Banking, Residential Investor Mortgage Banking and Investment Portfolio. Through RWT Horizons®, our venture investing initiative, we invest in early-stage companies that have a direct nexus to our operating platforms. Additionally, through Aspire, our home equity investment (“HEI”) platform, we directly originate HEI to homeowners. Our goal is to provide attractive returns to shareholders through a stable and growing stream of earnings and dividends, capital appreciation, and a commitment to technological innovation that facilitates risk-minded scale. Redwood Trust is internally managed and structured as a real estate investment trust (“REIT”) for tax purposes.

CAUTIONARY STATEMENT: This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, such as statements related to the offering, including the terms thereof, the anticipated closing date, the intention to apply to list the securities on the New York Stock Exchange and the expected use of the net proceeds. Forward-looking statements involve numerous risks and uncertainties. Redwood’s actual results may differ materially from those projected, and Redwood cautions investors not to place undue reliance on the forward-looking statements contained in this release. Forward-looking statements are not historical in nature and can be identified by words such as “anticipate,” “estimate,” “will,” “should,” “expect,” “believe,” “intend,” “seek,” “plan,” and similar expressions or their negative forms, or by references to strategy, plans, or intentions. No assurance can be given that the offering will be completed on the terms described, or at all, or that the net proceeds of the offering will be used as indicated. Completion of the offering on the terms described, the application to list the securities on the New York Stock Exchange and the application of the net proceeds, are subject to numerous conditions, risks and uncertainties, many of which are beyond the control of Redwood, including, among other things, those described in Redwood’s preliminary prospectus supplement dated June 13, 2024, the accompanying prospectus dated March 4, 2022, and the documents incorporated in the prospectus supplement and the prospectus by reference. Redwood undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240613050971/en/

Investor Relations

Kaitlyn Mauritz

Head of Investor Relations

Phone: 866-269-4976

Email: investorrelations@redwoodtrust.com

Source: Redwood Trust, Inc.

FAQ

What is the total amount of Redwood Trust's senior notes offering?

Redwood Trust is offering $85 million in senior notes.

What is the interest rate on Redwood Trust's senior notes?

The interest rate on Redwood Trust's senior notes is 9.00% per year.

When is the closing date for Redwood Trust's senior notes offering?

The offering is expected to close on June 18, 2024.

What will Redwood Trust use the proceeds from the senior notes offering for?

Redwood Trust will use the proceeds for general corporate purposes, including funding business activities and repaying existing debt.

What is the maturity date for Redwood Trust's senior notes?

The notes will mature on September 1, 2029.

What is the rating of Redwood Trust's senior notes?

The senior notes have received a BBB rating from Egan-Jones.

What is the ticker symbol for Redwood Trust's senior notes on the NYSE?

The notes are expected to trade under the symbol RWTO.

When will interest payments start for Redwood Trust's senior notes?

Interest payments will start on September 1, 2024.

What are the denominations for Redwood Trust's senior notes?

The notes will be issued in minimum denominations of $25.

Can Redwood Trust redeem the senior notes before maturity?

Yes, Redwood Trust can redeem the notes, in whole or in part, at its option at any time on or after September 1, 2026.