Redwood Trust Inc. priced $225.0 million of its 4.75% convertible senior notes due 2023 in an underwritten public offering.
The underwriters were granted a 30-day option to purchase up to an additional $33.8 million of notes solely to cover overallotments, if any. The notes will be senior unsecured obligations of Redwood. The offering is expected to close Aug. 18, subject to certain closing conditions.
Interest on the notes will be payable semiannually on Feb. 15 and Aug. 15, starting Feb. 15, 2018. The notes mature Aug. 15, 2023. Upon conversion, holders of the notes will receive shares of Redwood's common stock. If Redwood undergoes a fundamental change as defined in the offering prospectus, subject to certain conditions, holders may require Redwood to repurchase for cash all or part of such notes at 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest, if any.
Holders may convert their notes into Redwood common shares at the applicable conversion rate at any time prior to the close of business on the second scheduled trading day prior to the maturity date, unless Redwood has previously repurchased or redeemed them. Any conversions into common shares will be subject to certain ownership limitations. The initial conversion rate for each $1,000 aggregate principal amount of the notes is 53.8394 common shares, equal to a conversion price of approximately $18.57 per share, which is a nearly 12.5% premium to Redwood's Aug. 14 closing stock price.
Redwood will not be permitted to redeem the notes at its option, except to the extent necessary to preserve its status as a real estate investment trust.
Redwood expects to use the net proceeds of the offering for general corporate purposes, which may include the repayment of debt, including a portion of the $250 million of its outstanding 4.625% convertible senior notes due 2018, and to fund its business and investment activity. Part of the net proceeds may also be used to temporarily reduce borrowings under its short-term residential loan warehouse facilities and its short-term real estate securities repurchase facilities.
J.P. Morgan Securities LLC and Wells Fargo Securities LLC are acting as joint book-running managers for the proposed offering. Goldman Sachs & Co. LLC is acting as lead manager, and JMP Securities LLC is acting as co-manager.