Redwood Trust And CPP Investments Sign $750 Million Strategic Partnership

By Amit Chowdhry • Mar 20, 2024

Redwood Trust (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 – announced a $750 million strategic capital partnership. This partnership features a newly formed $500 million Asset Joint Venture (JV) and a $250 million corporate secured financing facility that CPP Investments provides to Redwood.

The JV will initially invest across the broad suite of Redwood’s residential investor bridge and term loans, targeting over $4 billion in total acquisitions. And Redwood and its subsidiaries will administer the assets on behalf of the JV.

CPP Investments and Redwood will contribute up to $500 million of equity to the JV, with an anticipated split of 80% from CPP Investments and 20% from Redwood. Redwood will earn ongoing fees for overseeing the JV’s administration and is entitled to additional performance fees on the realization of specified return hurdles.

The secured corporate financing will have a total capacity of up to $250 million and a two-year term with a one-year extension option. This facility is structured with revolving capacity to support Redwood’s mortgage banking platforms’ continued growth and scale.

To promote its long-term strategic alignment, CPP Investments will also receive warrants to acquire Redwood common stock in an initial amount of about $15 million, with the option to acquire up to an additional $36 million if specific joint venture deployment targets are achieved. These 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.

KEY QUOTES:

“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. 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.”

– Christopher Abate, Chief Executive Officer of Redwood

“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. 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.”

– David Colla, Managing Director, Head of Capital Solutions, CPP Investments