Item 1.01
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Entry Into a Material Definitive Agreement.
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Completion of Public Offering of Convertible Senior
Notes
On August 18, 2017, Redwood Trust, Inc. (the Company) completed its registered underwritten public offering of
$225.0 million aggregate principal amount of the Companys 4.75% Convertible Senior Notes due 2023 (the Notes) pursuant to an underwriting agreement (the Underwriting Agreement) with J.P. Morgan Securities LLC
(J.P. Morgan) and Wells Fargo Securities, LLC (Wells Fargo), as representatives of the several underwriters named therein (the Offering).
The Underwriters (as defined below) have the option to purchase within 30 days of August 14, 2017 up to an additional $33.75 million
aggregate principal amount of Notes from the Company, solely to cover over-allotments.
The Notes (and the shares of the Companys
common stock, par value $0.01 per share (the Common Stock) issuable upon conversion of the Notes) have been registered pursuant to the Registration Statement on Form S-3 (Registration Statement No. 333-211267) (the
Registration Statement) filed with the Securities and Exchange Commission (the Commission) under the Securities Act of 1933, as amended (the Act), including the prospectus supplement filed by the Company with the
Commission pursuant to Rule 424(b) under the Act dated August 14, 2017 (the Prospectus Supplement) to the prospectus contained in the Registration Statement dated May 10, 2016.
The resulting aggregate net proceeds to the Company from the Offering were approximately $218.3 million (and, if the Underwriters
over-allotment option is exercised in full, would be approximately $251.1 million), after deducting underwriting discounts and estimated expenses. The Company intends to use the net proceeds from the Offering for general corporate purposes, which
may include the repayment of debt, including a portion of the $250 million outstanding aggregate principal amount of the Companys 4.625% convertible senior notes due 2018 repurchased in the open market or in privately negotiated transactions
or repaid at maturity on April 15, 2018. The Company may also use a portion of the net proceeds from this Offering to fund its business and investment activity, which may include funding purchases of residential mortgage loans and acquiring
mortgage-backed securities for the Companys investment portfolio, as well as for other general corporate purposes. Pending such uses, the Company may use a portion of the net proceeds from this Offering to temporarily reduce borrowings under
its short-term residential loan warehouse facilities and its short-term real estate securities repurchase facilities. The Company may subsequently re-borrow amounts under its short-term residential loan warehouse facilities and its short-term real
estate securities repurchase facilities to fund its business and investment activity, as described above.
Base Indenture and Supplemental Indenture
The Company issued the Notes under an indenture dated as of March 6, 2013 (the Base Indenture) between the Company
and Wilmington Trust, National Association, a national banking association, as trustee (the Trustee), as supplemented by the second supplemental indenture dated as of August 18, 2017, between the Company and the Trustee (the
Supplemental Indenture and, together with the Base Indenture, the Indenture).
The Notes bear interest at a rate
of 4.75% per year, payable semi-annually in arrears on February 15 and August 15 of each year, beginning on February 15, 2018. The Notes are the general unsecured obligations of the Company and rank equal in right of payment with
the other existing and future senior unsecured indebtedness of the Company and senior in right of payment to any indebtedness that is contractually subordinated to the Notes. The Notes, however, are effectively subordinated in right of payment to
the existing and future secured indebtedness of the Company to the extent of the value of the collateral securing such indebtedness, and structurally subordinated to the claims of the Companys subsidiaries creditors, including trade
creditors.
The Notes will mature on August 15, 2023 (the Maturity Date), unless earlier
redeemed or repurchased by the Company or converted. Holders may convert any of their Notes into shares of the Companys Common Stock, 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 the Notes have been previously repurchased or redeemed by the Company.
The initial conversion rate
of the Notes is 53.8394 shares of Common Stock per $1,000 principal amount of Notes, which is equivalent to an initial conversion price of approximately $18.57 per share. The initial conversion price represents a premium of approximately 12.5% over
the closing price of the Companys Common Stock on August 14, 2017. The conversion rate is subject to adjustment in certain circumstances.
Upon the occurrence of a fundamental change (as defined in the Indenture) involving the Company, holders of the Notes may require the Company
to repurchase all or a portion of their Notes for cash at a price equal to 100% of the principal amount of the Notes to be purchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.
The Company will not be permitted to redeem the Notes at its option prior to maturity, except to the extent, and only to the extent, necessary
to preserve its status as a real estate investment trust (REIT) for U.S. federal income tax purposes. If the Company determines that redeeming the Notes is necessary to preserve its status as a REIT, then it may redeem all or part of the
Notes at a cash redemption price equal to 100% of the principal amount of the Notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. The Company may at any time and from time to time repurchase Notes by tender
offer, open market purchases, negotiated transactions or otherwise, in accordance with applicable securities laws.
If an event of default
(as defined in the Indenture) occurs and is continuing, the Trustee by notice to the Company, or the holders of at least 25% in aggregate principal amount of the Notes then outstanding by notice to the Company and the Trustee, may, and the Trustee
at the request of such holders shall, declare 100% of the principal of and accrued and unpaid interest on all the Notes to be due and payable. In the case of an event of default arising out of certain bankruptcy or insolvency events (as set forth in
the Indenture), 100% of the principal of and accrued and unpaid interest on the Notes will automatically become due and payable.
A copy
of the Base Indenture is filed as Exhibit 4.1 to this Current Report. A copy of the Supplemental Indenture, including the form of Note, is filed as Exhibit 4.2 to this Current Report.