Redwood Trust to close $85M in debt offering

Redwood's unsecured debt consists of senior notes due in 2029, paying 9% annually

Real estate investment trust Redwood Trust is expected to close on Tuesday on the offering of $85 million in debt, following on the heels of other companies in this space. Analysts say the resources could be used to buy back other outstanding notes or improve the company’s cash position in the near term. 

Redwood’s unsecured debt consists of senior notes due in 2029 that pay 9% annually. The offering can be increased by $12.75 million in aggregate principal amount available for 30 days to cover over-allotments.

The company said the proceeds of the debt offering are expected to fund, among other things, the firm’s residential lending business, the acquisition of mortgage-backed securities (MBS), and strategic acquisitions and investments. 

It can also repay indebtedness, such as a subsidiary’s 5.75% exchangeable senior notes due in 2025 and Redwood’s 7.75% convertible senior notes due in 2027.

BTIG analysts Eric Hagen and Jake Katsikas estimate that the debt offering will bring the company’s total unsecured debt stack to $850 million, supported by about $1 billion in stockholder equity.

According to the analysts, at wider spreads, the company “could look to buy back its 2025 and 2026 notes with a portion of the proceeds.”

In the near term, however, the analysts expect Redwood’s leadership to “opportunistically keep a higher cash balance,” mainly because a new facility will provide $150 million in borrowing capacity. 

Morgan Stanley; Goldman Sachs; RBC Capital Markets; Wells Fargo Securities; Keefe, Bruyette & Woods; and Piper Sandler were the book-running managers for the offering. The notes, which had an investment grade rating of BBB from Egan-Jones Ratings Co., are expected to be listed on the New York Stock Exchange

Other companies in the space have also recently issued or are about to issue debt.

loanDepot plans to extend its $497.8 million in senior notes due in the fourth quarter of 2025. Mr. Cooper issued senior notes to qualified investors in January that will mature in 2032 and bear interest at 7.125% per year.

In addition, Pennymac issued new debt last year that will mature in December 2029 and pay 7.875% annually. And Rithm Capital priced an offering of $775 million in aggregate principal of senior unsecured notes due in 2029 at 8% per year.

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