Redwood Trust and CPP Investments Announce $750 Million Strategic Capital Partnership
Redwood Trust, Inc. (NYSE: RWT) and Canada Pension Plan Investment Board (CPP Investments) announce a $750 million strategic capital partnership. The partnership includes a $500 million Asset Joint Venture and a $250 million corporate secured financing facility. Redwood will administer the assets on behalf of the Joint Venture, with an equity split of 80% from CPP Investments and 20% from Redwood. CPP Investments will also receive warrants to acquire Redwood common stock. This partnership aims to support Redwood's growth in the residential mortgage sector.
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Redwood Trust, Inc. (NYSE: RWT) partners with CPP Investments in a $750 million strategic capital agreement.
The partnership includes a $500 million Asset Joint Venture and a $250 million corporate secured financing facility.
Redwood will administer the assets for the Joint Venture, with an equity split of 80% from CPP Investments and 20% from Redwood.
CPP Investments will receive warrants to acquire Redwood common stock as part of the partnership.
The partnership aims to support Redwood's growth in the residential mortgage sector.
The strategic capital partnership between Redwood Trust and CPP Investments, involving a $750 million investment, is a significant move in the real estate finance industry. The creation of a $500 million Asset Joint Venture and a $250 million corporate secured financing facility suggests a robust confidence in Redwood's mortgage banking platforms and their underlying residential investor bridge and term loans. The partnership aims to leverage Redwood's operational expertise with CPP Investments' financial muscle to target over $4 billion in total acquisitions, which could potentially enhance Redwood's market position and revenue streams.
From a financial standpoint, the anticipated equity split and the ongoing and performance-based fee structures indicate a well-thought-out arrangement that aligns the interests of both parties. The inclusion of warrants for CPP Investments to acquire Redwood common stock further cements the long-term strategic alignment. This move could be seen as a positive signal to the market, as it not only provides Redwood with additional capital but also brings in a reputable institutional partner with a vested interest in the company's success. However, the 25% premium on the warrants and the anti-dilution provisions warrant close scrutiny to assess the potential impact on current shareholders. Overall, this partnership could signal a bullish outlook on the U.S. housing market and asset-backed credit opportunities, which may have a positive effect on Redwood's stock performance in the mid to long term.
The partnership between Redwood Trust and CPP Investments reflects a broader trend in the investment management industry where large-scale joint ventures are increasingly being used to access growth opportunities. This particular partnership is poised to leverage Redwood's established presence in the U.S. mortgage credit sector and CPP Investments' extensive capital resources. The strategic move could resonate well with investors who are keen on companies that demonstrate scalability and operational efficiency through strategic alliances.
Furthermore, the transaction underscores a positive sentiment towards the U.S. residential mortgage market. It could potentially influence other market players to seek similar strategic partnerships to bolster their market positions. The partnership's focus on residential investor bridge and term loans aligns with the current demand for diversified mortgage products, which could lead to increased market share for Redwood. However, the execution of the strategy and the management of the joint venture's portfolio will be critical in realizing the projected $4 billion in acquisitions and in maintaining investor confidence. The partnership's performance metrics and its impact on Redwood's earnings will be key indicators to watch in the coming financial quarters.
The structure of the strategic partnership between Redwood Trust and CPP Investments involves intricate legal and contractual arrangements. The deal includes not only the formation of a joint venture but also a corporate secured financing facility and the issuance of warrants. These elements require careful legal structuring to ensure compliance with securities regulations and to protect the interests of both parties. The legal implications of the warrants, in particular, with their premium pricing and anti-dilution mechanisms, could have significant ramifications for Redwood's capital structure and for existing shareholders.
Additionally, the mandatory conversion feature of the warrants could lead to future dilution of Redwood's common stock, which necessitates transparent communication to shareholders about the potential effects. The legal expertise is also important in drafting the performance fee arrangements, ensuring that they are in line with industry standards and that they incentivize the desired outcomes. Overall, the legal framework of the partnership must be constructed to withstand regulatory scrutiny, to facilitate the smooth operation of the joint venture and to minimize the risk of disputes between the involved parties.
03/19/2024 - 07:30 AM
Creates Long-Term Alignment Between Two Leading Investment Managers
Provides Accretive Financing Capacity to Support Growth of Redwood’s Market-Leading Operating Platforms
MILL VALLEY, Calif. & TORONTO --(BUSINESS WIRE)--
Redwood Trust, Inc. (NYSE: RWT; “Redwood” or the “Company”), a leader in expanding access to housing for homebuyers and renters, and Canada Pension Plan Investment Board (“CPP Investments”), through subsidiaries of CPPIB Credit Investments Inc., today announced a $750 million
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The partnership consists of a newly formed $500 million $250 million
The Joint Venture will initially invest across the broad suite of Redwood’s residential investor bridge and term loans, targeting more than $4 billion $500 million 80% from CPP Investments and 20% from Redwood. Redwood will earn ongoing fees to oversee the administration of the Joint Venture and is entitled to earn additional performance fees upon realization of specified return hurdles.
The secured corporate financing will have total capacity of up to $250 million
To further promote long-term strategic alignment, CPP Investments will also receive warrants to acquire Redwood common stock in an initial amount of approximately $15 million $36 million 1 . The warrants are struck at a 25% premium to the trailing 30-day average stock price and have anti-dilution mechanics including a mandatory conversion feature.
“We are thrilled to announce this strategic partnership with CPP Investments, whose experienced team sees the power of Redwood’s franchise and the financial assets we procure,” said Christopher Abate, Chief Executive Officer of Redwood. “Last year, we unveiled a key initiative to evolve our investment approach, deploying capital side-by-side with strategic investing partners and driving organic scale within our operating platforms. Today’s announcement is a critical step forward in that evolution, one which we believe supports the unprecedented growth opportunities in front of us to scale our mortgage banking businesses and generates attractive earnings streams for our shareholders.”
“This investment partnership with Redwood provides an attractive opportunity to deploy capital at scale into residential mortgage assets alongside a well-established leader in the U.S. mortgage credit sector with a 30-year proven track record,” said David Colla, Managing Director, Head of Capital Solutions, CPP Investments. “We have confidence in Redwood’s long-term growth strategy and the strength of their origination franchise. This transaction expresses our positive thesis on U.S. housing and other asset-backed credit opportunities.”
For additional information on this announcement, please see the Current Report on Form 8-K filed by Redwood with the SEC concurrently with the publication of this press release.
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1 Represents the aggregate exercise price of the warrants.
Forward-Looking Statements
This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, including statements related to the opportunity to scale Redwood’s mortgage banking business and generate attractive earnings streams, as well as statements related to total equity commitment to the joint venture, the targeted amount of total loan acquisition volume by the joint venture, and Redwood’s opportunity to earn administrative fees and performance fees upon realization of specified return hurdles in connection with the joint venture. Forward-looking statements involve numerous risks and uncertainties. Redwood's actual results may differ from Redwood's beliefs, expectations, estimates, and projections and, consequently, you should not rely on these forward-looking statements as predictions of future events. 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. These forward-looking statements are subject to risks and uncertainties, including, among other things, those described in our Annual Report on Form 10-K for the year ended December 31, 2023 under the caption “Risk Factors”. Other risks, uncertainties, and factors that could cause actual results to differ materially from those projected may be described from time to time in reports we file with the Securities and Exchange Commission, including reports on Forms 10-Q and 8-K. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
About Redwood
Redwood Trust, Inc. (NYSE: RWT) is a specialty finance company focused on several distinct areas of housing credit. Our operating platforms occupy a unique position in the housing finance value chain, providing 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. Our aggregation, origination and investment activities have evolved to incorporate a diverse mix of residential, business purpose and multifamily assets. 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. We operate our business in three segments: Residential Mortgage Banking, Business Purpose Mortgage Banking and Investment Portfolio. Additionally, through RWT Horizons™, our venture investing initiative, we invest in early-stage companies strategically aligned with our business across the lending, real estate, and financial technology sectors to drive innovations across our residential and business-purpose lending platforms. Since going public in 1994, we have managed our business through several cycles, built a track record of innovation, and established a best-in-class reputation for service and a common-sense approach to credit investing. Redwood Trust is internally managed and structured as a real estate investment trust ("REIT") for tax purposes. For more information about Redwood, please visit our website at www.redwoodtrust.com or connect with us on LinkedIn .
About CPP Investments
Canada Pension Plan Investment Board (CPP Investments™) is a professional investment management organization that manages the Fund in the best interest of the more than 22 million contributors and beneficiaries of the Canada Pension Plan. In order to build diversified portfolios of assets, investments are made around the world in public equities, private equities, real estate, infrastructure and fixed income. Headquartered in Toronto , with offices in Hong Kong , London , Luxembourg, Mumbai , New York City , San Francisco , São Paulo and Sydney , CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments. At December 31, 2023, the Fund totalled C$590.8 billion (US$448.1 billion ). For more information, please visit www.cppinvestments.com or follow us on LinkedIn , Instagram or on X @CPPInvestments .
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Redwood
investorrelations@redwoodtrust.com
CPP Investments
alevine@cppib.com
Source: Redwood Trust, Inc.
What is the ticker symbol for Redwood Trust, Inc.?
The ticker symbol for Redwood Trust, Inc. is RWT.
What is the total value of the strategic capital partnership between Redwood Trust and CPP Investments?
The total value of the partnership is $750 million, including a $500 million Asset Joint Venture and a $250 million corporate secured financing facility.
How will the equity split be between CPP Investments and Redwood in the Joint Venture?
CPP Investments will contribute 80% of the equity, while Redwood will contribute 20% to the Joint Venture.
What additional benefit will CPP Investments receive in the partnership?
CPP Investments will receive warrants to acquire Redwood common stock, initially amounting to approximately $15 million with the option to acquire up to an additional $36 million if certain joint venture deployment targets are met.
What is the purpose of the partnership between Redwood Trust and CPP Investments?
The partnership aims to support the growth of Redwood's market-leading operating platforms in the residential mortgage sector.
