Redwood Trust Prices $90.0 Million Senior Notes Offering

Rhea-AI Summary

Redwood Trust (NYSE: RWT) has announced the pricing of a $90 million public offering of senior notes due 2030, with a 9.125% interest rate. The company has granted underwriters a 30-day option to purchase up to an additional $13.5 million in notes for over-allotments. The notes, expected to close on January 17, 2025, will be listed on the NYSE under the symbol 'RWTP' and have received a BBB- investment grade rating from Egan-Jones.

The proceeds will be used for general corporate purposes, including funding residential and business lending operations, acquiring mortgage-backed securities, and potentially repaying existing debt. The notes will pay interest quarterly, mature on March 1, 2030, and will be issued in minimum denominations of $25. Redwood maintains the right to redeem the notes after March 1, 2027, at 100% of principal plus accrued interest.

Positive

• Received BBB- investment grade rating from Egan-Jones
• Successfully priced $90 million senior notes offering
• 30-day option for additional $13.5 million in notes

Negative

• High interest rate of 9.125% on new notes
• Additional debt burden on company's balance sheet

Insights

Fixed Income Analyst

The $90M senior notes offering from Redwood Trust presents a strategic financial maneuver with notable implications. The 9.125% coupon rate, significantly above Treasury yields, reflects current market conditions and Redwood's credit profile, supported by a BBB- investment grade rating from Egan-Jones. The pricing indicates a reasonable balance between attracting investors and managing cost of capital.

The quarterly interest payments and $25 denomination structure are designed to appeal to retail investors seeking regular income. The 2030 maturity provides medium-term financing stability, while the 2027 call option offers flexibility for refinancing if interest rates decline. The change of control provision at 101% of principal provides investor protection.

Most notably, the intended use of proceeds for potential repayment of 5.75% exchangeable notes due 2025 and 7.75% convertible notes due 2027 suggests proactive liability management, though at a higher cost. This refinancing strategy, while expensive, helps address near-term maturities and reduces equity dilution risk from convertible securities.

Investment Banking Analyst

The syndicate structure, led by six major investment banks as joint book-runners, indicates strong institutional support and broad distribution capabilities. The inclusion of an over-allotment option of $13.5M suggests anticipated demand and provides flexibility in final sizing. The NYSE listing application enhances liquidity prospects for investors.

The timing of this offering aligns with market windows, though the elevated yield reflects both the broader rate environment and specific considerations for mortgage REITs. The automatic shelf registration facilitates efficient execution, while the BBB- rating provides access to investment-grade focused investors. This deal represents a meaningful addition to Redwood's capital structure, providing operational flexibility for their residential and business purpose lending activities.

MILL VALLEY, Calif.--(BUSINESS WIRE)-- Redwood Trust, Inc. (NYSE: RWT; “Redwood” or the “Company”) today announced the pricing of an underwritten public offering of $90,000,000 aggregate principal amount of its 9.125% senior notes due 2030 (the “Notes”). In connection with the offering, Redwood granted the underwriters a 30-day option to purchase up to an additional $13,500,000 aggregate principal amount of Notes, to cover over-allotments. The offering is expected to close on January 17, 2025, 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 “RWTP” 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 9.125% per year, payable quarterly in arrears on March 1, June 1, September 1 and December 1 of each year, beginning on June 1, 2025. The Notes will mature on March 1, 2030. 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 March 1, 2027 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, we directly originate home equity investment options to homeowners and purchase expanded home loan products from mortgage originators. 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 January 15, 2025, 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/20250115740675/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 interest rate and maturity date for RWT's new senior notes?

The senior notes have a 9.125% interest rate and will mature on March 1, 2030.

How much can RWT raise through the senior notes offering including over-allotment?

RWT can raise up to $103.5 million total, comprising $90 million base offering plus $13.5 million in over-allotment options.

What credit rating did RWT's new senior notes receive?

The notes received an investment grade rating of BBB- from Egan-Jones Ratings Company.

When can RWT redeem the 2030 senior notes?

RWT can redeem the notes at its option on or after March 1, 2027, at 100% of principal plus accrued interest.

What will RWT use the proceeds from the senior notes offering for?

The proceeds will be used for general corporate purposes, including funding lending operations, acquiring mortgage-backed securities, and potentially repaying existing debt.