Redwood Trust Prices $90.0 Million Senior Notes Offering

Redwood Trust, Inc. (NYSE: RWT), a leading specialty finance company focused on expanding access to housing, has announced the pricing of an underwritten public offering of $90,000,000 aggregate principal amount of its 9.125% senior notes due 2030. The offering is expected to close on January 17, 2025, subject to the satisfaction of certain closing conditions. The notes have received an investment grade rating of BBB- from Egan-Jones Ratings Company, an independent, unaffiliated rating agency.

Redwood Trust intends to use the net proceeds from the offering for general corporate purposes, which may include funding its residential and business purpose lending mortgage banking businesses, acquiring mortgage-backed securities for its investment portfolio, funding other long-term portfolio investments, and funding strategic acquisitions and investments. Additionally, the company may use the proceeds to repay 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 Trust and 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 Trust 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 Trust 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.

The public offering will be made pursuant to an automatic shelf registration statement on Form S-3 that was filed by Redwood Trust 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, Goldman Sachs & Co. LLC, RBC Capital Markets, LLC, Wells Fargo Securities, LLC, Keefe, Bruyette & Woods, Inc., and Piper Sandler & Co.



Redwood Trust's decision to issue senior notes is driven by several key factors, including the need to fund its business and investment activity, the potential to repay existing indebtedness, and the opportunity to take advantage of favorable market conditions for debt issuance. The high yield of 9.125% indicates that investors are willing to accept a higher risk premium for investing in Redwood Trust's debt. Additionally, the investment grade rating of BBB- from Egan-Jones Ratings Company may attract a broader range of investors.

The offering of these senior notes will impact Redwood Trust's capital structure and debt-to-equity ratio. The issuance of the notes represents an increase in Redwood Trust's debt obligations, which will likely lead to an increase in the debt-to-equity ratio. However, the exact impact on the ratio will depend on the change in the company's equity value, which is not provided in the given information. Additionally, the offering will result in increased interest expense for Redwood Trust, which will impact the company's net income and earnings per share (EPS).



In conclusion, Redwood Trust's decision to issue senior notes is a strategic move aimed at funding its business activities, repaying existing debt, and taking advantage of favorable market conditions. The offering will impact the company's capital structure and debt-to-equity ratio, as well as its interest expense. Investors should carefully consider the risks and benefits of this offering, as well as the potential impact on Redwood Trust's financial performance.