CPP Investments has announced a $750-million US capital partnership with California-based Redwood Trust Inc., to invest in residential investor bridge and term loans.

The venture is structured as a $500-million asset joint venture and a $250-million corporate secured financing facility being provided by CPP investments to Redwood.

CPP Investments is also to contribute 80 per cent of the equity to the asset joint venture, which is targeting over $4 billion in total acquisitions.

The initial investment is to be spread across a range of Redwood’s loans.

“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,” David Colla, CPP Investments’ managing director, head of capital solutions, said in the announcement Tuesday.

“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.”

CPP able to acquire Redwood stock

Redwood and its subsidiaries are to administer the assets on behalf of the two companies and will earn fees for the services, along with bonuses if certain “specified return hurdles” are met or exceeded.

The final element of the venture is that CPP Investments will receive warrants to acquire $15 million in Redwood common stock, with an option to acquire up to an additional $36 million if certain joint venture deployment targets are achieved.

Pricing for the warrants is set at a 25 per cent premium to the trailing 30-day average stock price.

“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,” Christopher Abate, the chief executive officer of Redwood, said in the announcement.

“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.”

About CPP Investments, Redwood Trust

CPP Investments manages the fund in the interest of over 22 million contributors and beneficiaries of the Canada Pension Plan. Its diversified portfolios of assets include global investments in public equities, private equities, real estate, infrastructure and fixed income. 

Headquartered in Toronto, with offices in Hong Kong, London, Luxembourg, Mumbai, New York City, San Francisco, São Paulo and Sydney, CPP Investments is governed and managed independently of the Canada Pension Plan and at arm’s length from governments.

As of Dec. 31, the fund’s assets were valued at $590.8 billion Cdn ($448.1 billion US). 

Redwood Trust, Inc. (RWT-N) is a specialty finance company focused on several distinct areas of housing credit. The company has been publicly traded as a real estate investment trust since 1994.

Its platforms provide liquidity to growing segments of the U.S. housing market not well-served by government programs. Redwood delivers customized housing credit investments to a diverse mix of investors through a series of securitization platforms; whole-loan distribution activities; and publicly traded shares. 

The firm’s aggregation, origination and investment activities incorporate residential, business purpose and multifamily assets. 

Redwood operates in three segments: residential mortgage banking, business purpose mortgage banking and investment portfolio.

It also offers a venture-investing initiative for early-stage companies strategically aligned with its business across the lending, real estate and financial technology sectors to drive innovations across its residential and business-purpose lending platforms.