Redwood Trust, Inc., a key player in broadening housing accessibility for both homebuyers and renters, has entered into a significant capital partnership with Canada Pension Plan Investment Board (CPP Investments) through CPPIB Credit Investments Inc., amounting to US$750 million.
This collaboration encompasses two primary components: a newly established US$500 million Asset Joint Venture and a US$250 million secured financing facility provided by CPP Investments to Redwood. The Joint Venture's primary focus will be on investing in Redwood's wide range of residential investor bridge and term loans, aiming for acquisitions totaling over US$4 billion. The administration of these assets will be overseen by Redwood and its subsidiaries, with both parties jointly contributing up to US$500 million in equity, with an expected 80-20 split, predominantly from CPP Investments and Redwood, respectively. Redwood stands to gain ongoing administrative fees for managing the Joint Venture, along with potential performance fees upon reaching specified return benchmarks.
The secured corporate financing component, with a total capacity of up to US$250 million, will operate on a two-year term, extendable by one year. Designed with revolving capacity, this facility is structured to facilitate the continuous growth and expansion of Redwood's mortgage banking platforms.
In addition to the aforementioned financial arrangements, CPP Investments will be granted warrants to acquire Redwood common stock valued at approximately US$15 million initially, with the opportunity to acquire up to an additional US$36 million based on the achievement of certain joint venture deployment targets. These warrants are priced at a premium of 25% over the trailing 30-day average stock price and include anti-dilution mechanisms, including a mandatory conversion feature.
This strategic collaboration underscores both Redwood Trust's commitment to expanding housing accessibility and CPP Investments' focus on prudent investment opportunities in the real estate sector. Through this partnership, both entities aim to leverage their respective strengths to achieve mutually beneficial outcomes in the housing market.
“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.”
Source: CPP Investments
