Redwood Trust, Inc. has filed a registration statement (including
prospectus) with the SEC for the offering to which this communication relates.
Before you invest, you should read the prospectus in that registration
statement, the preliminary prospectus supplement and other documents the
issuer has filed with the SEC for more complete information about the issuer
and the offering. You may get these documents for free by visiting EDGAR on
the SEC Web site at http://www.sec.gov. Alternatively, the issuer, any
underwriter, or any dealer participating in the offerings will arrange to send
you the relevant prospectus if you request it by contacting J.P. Morgan
Securities Inc., Chase Distribution & Support Service, Attn:
Redwood Trust, Inc. (NYSE: RWT) today announced the following preliminary information regarding developments in its business and certain estimates for the fourth quarter of 2008. This information is set forth in a prospectus supplement we filed today with the Securities and Exchange Commission in connection with our proposed underwritten public offering of 17 million shares of our common stock, plus up to an additional 2.55 million shares to cover overallotment. Net proceeds from the offering will be used to acquire residential and commercial real estate loans and mortgage securities and for other general corporate purposes. The sole bookrunning manager for the offering is J.P. Morgan Securities Inc.
During the fourth quarter of 2008, prices for residential and commercial
mortgage-backed securities remained under pressure due to a combination of
deleveraging, the declining economy, continuing house price depreciation, lack
of credit, a limited number of buyers, and the Department of the Treasury's
announcement in early November that it no longer intended to use TARP funds to
acquire non-agency mortgage securities. As a result, prices became
increasingly attractive and Redwood re-entered the secondary mortgage market
in the fourth quarter and invested
We believe that many market participants will continue to liquidate their holdings of mortgage-related securities due to liquidity and capital needs. We also believe that the trend of ratings downgrades of those securities is likely to continue and contribute to selling pressure. In this environment, we expect to have opportunities to make additional acquisitions of mortgage-related securities at prices that will provide us with attractive long-term returns.
"Our capital plan is flexible," said
We currently estimate that our book value at
We currently estimate that our non-GAAP economic value at
The reductions in our estimated GAAP book value and estimated non-GAAP
economic value reflect a decline in the fair value of our assets primarily as
a result of an increase in the discount rate we used in valuing those assets,
reflecting what we believe to be a continuing reduction in market liquidity
for mortgage-related securities. We made no material changes in the
underlying cash flow assumptions in computing the fair value of assets we held
at
We currently estimate that we had unrestricted cash of
The estimate of our book value per share, our non-GAAP estimate of economic value per share, our estimate of cash sources and uses and our estimate of unrestricted cash are subject to revision, which could be material, as we complete the preparation of our 2008 year-end financial statements (including all required disclosures) and our 2008 year-end audit.
As we previously announced on
CAUTIONARY STATEMENT: This press release contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve numerous risks and uncertainties. Redwood's actual results may differ from our 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. Statements regarding the following subjects, among others, are forward-looking by their nature:
-- Our proposed offering of our common stock and the anticipated uses of the net proceeds. -- Our estimate of book value per share as of December 31, 2008, and the components thereof. -- Our non-GAAP estimate of economic value per share as of December 31, 2008, and the components thereof. -- Our estimate of unrestricted cash at December 31, 2008. -- Our estimate of sources and uses of cash during the fourth quarter of 2008. -- Our announcement of Redwood's intention to reduce the 2009 regular dividend to a rate of $0.25 per share per quarter.
These forward-looking statements are subject to risks and uncertainties,
including, among other things, those described in Redwood's Prospectus
Supplement dated
This press release does not constitute an offer to sell or a solicitation of an offer to buy any securities, nor shall there be any sale of these securities in any state or jurisdiction in which such an offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such state or jurisdiction.
The following supplemental non-GAAP balance sheet presents our estimated
assets and liabilities at
Components of Estimated Book Value (a) December 31, 2008 (Unaudited, $ in millions, except per share data) Estimated Estimate GAAP of Book Economic Value Adj. Value Real estate securities at Redwood Residential $145 $145 Commercial 42 42 CDO 4 4 Total real estate securities at Redwood 191 191 Cash and cash equivalents 126 126 Investments in the Fund 28 28 Investments in Sequoia 97 (32) (b) 65 Investments in Acacia 16 (7) (c) 9 Short-term debt - Redwood - - Long-term debt - Redwood (150) 108 (d) (42) Other assets/liabilities, net (e) (6) (6) Stockholders' equity $302 $371 Book value per share $9.02 $11.10
(a) In reviewing the components of estimated book value and economic value, there are a number of important factors and limitations to consider. The estimates of book value and economic value are calculated as of a particular point in time based on our existing assets and liabilities and do not incorporate other factors that may have a significant impact on that value, most notably the impact of future business activities. As a result, the estimated values do not necessarily represent an estimate of our net realizable value, liquidation value, or our market value as a whole. Amounts we ultimately realize from the disposition of assets or settlement of liabilities may vary significantly from the estimated values. Because temporary changes in market conditions can substantially affect value, we do not believe that short-term fluctuations in the value of our assets and liabilities are necessarily representative of the effectiveness of our investment strategy or the long-term underlying value of our business. When quoted market prices or observable market data are not available to estimate fair value, we rely on unobservable inputs, which are generally more subjective and involve a high degree of management judgment and assumptions. These assumptions may have a significant effect on our estimates of value, and the use of different assumptions as well as changes in market conditions could have a material effect on our results of operations or financial condition.
(b) Our Sequoia investments consist of credit enhancement securities,
investment grade securities, and interest-only securities we acquired from the
Sequoia entities. We calculated the
(c) Our Acacia investments consist of ABS issued that we acquired from the
Acacia entities and equity interests in those entities. The
(d) We issued
(e) Other assets/liabilities, net are comprised of real estate loans of
The table below provides a breakout of our estimated GAAP fair value of
our unaudited real estate securities portfolio by type of security and vintage
at
Real Estate Securities at Redwood and Market Value as a % of Principal December 31, 2008 (Unaudited, $ in millions) <=2004 2005 2006-2008 Total Market Market Market Market Value % Value % Value % Value % Residential Prime IGS $15 25% $41 47% $17 38% $73 37% CES 18 10% 2 3% 2 2% 22 6% Non-prime IGS 1 32% 25 41% 16 39% 42 40% CES 1 2% 1 4% 6 2% 8 2% Total Residential 35 13% 69 28% $41 7% 145 13% Commercial CES 10 21% 9 7% 23 7% 42 8% CDO - - 4 9% - - 4 9% Total $45 14% $82 21% $64 7% $191 12%
The following table shows a breakout of the consolidating components of
our estimate of our unaudited consolidated balance sheet at
Estimated Consolidating Balance Sheet December 31, 2008 (Unaudited, $ in millions) Redwood Opportunity Inter- Consoli- Redwood Fund Sequoia Acacia company dated Real estate loans $3 $- $4,644 $12 $- $4,659 Real estate securities 191 48 - 408 (74) 573 Other investments - - - 78 - 78 Cash and cash equivalents 126 - - - - 126 Total earning assets 320 48 4,644 498 (74) 5,436 Investment in the Opportunity Fund 28 - - - (28) - Investment in Sequoia 97 - - - (97) - Investment in Acacia 16 - - - (16) - Other assets 37 5 44 60 - 146 Total assets $498 $53 $4,688 $558 $(215) $5,582 Short-term debt - Redwood $- $- $- $- $- $- Other liabilities 46 2 9 195 - 252 Asset-backed securities issued - Sequoia - - 4,582 - (74) 4,508 Asset-backed securities issued - Acacia - - - 347 - 347 Long-term debt - Redwood 150 - - - - 150 Total liabilities 196 2 4,591 542 (74) 5,257 Minority interest - 23 - - - 23 Total stockholders' equity 302 28 97 16 (141) 302 Total liabilities and stockholders' equity $498 $53 $4,688 $558 $(215) $5,582
The table below shows management's estimated sources and uses of our cash during the fourth quarter of 2008. This table excludes the gross cash flows generated by the Redwood Opportunity Fund, and our Sequoia and Acacia securitization entities, but does include the cash flows paid to Redwood as a result of our investments in those entities.
Redwood Estimated Sources and Uses of Cash Three Months Ended December 31, 2008 (Unaudited, $ in millions) Sources: Cash from investments $40 Proceeds from asset sales 1 Sale of shares 2 Asset management fees 1 Changes in working capital 2 Total Sources 46 Uses: Asset acquisitions (50) Reduction in short term borrowings (7) Dividends (26) Operating expenses (12) Interest expense (2) Total Uses (97) Net Uses of Cash ($51) Beginning Cash Balance at 09/30/08 177 Ending Cash Balance at 12/31/08 $126
SOURCE Redwood Trust, Inc.