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FOR
IMMEDIATE RELEASE
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CONTACTS:
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Lauren
K. Morgensen
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Redwood
Trust, Inc.
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(415)
384-3558
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Friday,
February 29, 2008
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Martin
S. Hughes
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(415)
389-7373
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REDWOOD
TRUST FILES FOR EXTENSION OF TIME TO FILE 10-K AND
REPORTS
GAAP BOOK VALUE OF $23.18 AS OF JANUARY 1, 2008
AFTER
THE ADOPTION OF FAS 159
MILL
VALLEY, CA
-
February 29, 2008
- Redwood
Trust, Inc. (NYSE: RWT) today filed a Form 12b-25 for an extension of time
to
complete and file its Annual Report on Form 10-K for the year ended December
31,
2007. The well-publicized mortgage and liquidity crisis has resulted in broad
decreases in the fair value of real estate securities held at Redwood as
well as
securities consolidated from Acacia CDO entities. Under generally accepted
accounting principles (GAAP), Redwood is required to determine the fair value
of
real estate securities carried on its balance sheet at December 31, 2007.
Redwood has completed this quantitative process. An extension of time is
necessary to enable Redwood to complete its assessments of impairments resulting
from fair value adjustments. These assessments have no effect on our book
value.
During
the fourth quarter, Redwood recorded total negative fair value adjustments
of
$956 million, of which $154 million relates to securities held at Redwood
and
$802 million relates to securities held by Acacia CDO entities that are
consolidated for accounting purposes. We need to assess negative fair value
adjustments as of December 31, 2007 for impairments. Under GAAP, impairments
can
be considered either temporary or other-than-temporary (permanent). Permanent
impairments flow through our income statement as negative valuation
adjustments, while temporary impairments are reflected as a reduction of
stockholders’ equity and do not flow through our income statement. Until we
complete the impairment evaluation process, we cannot report our GAAP loss
for
the fourth quarter or for the year-ended December 31, 2007. Although we have
up
to fifteen days to file our 2007 10-K, we expect that we will file our 2007
10-K
prior to that deadline.
The
completion of this process does not impact the calculation of
stockholders’
equity or book value. As we have discussed in prior reports, we believe the
real
economic impact of diminished market values is significantly less severe
than
the financial reporting impact that will be reported in our 2007 GAAP financial
statements. The primary reason for the divergence between economics and GAAP
is
the accounting treatment required for our investments in the consolidated
Acacia
CDO entities. During 2007, we recorded cumulative fair value declines for
Acacia’s assets of $1.6 billion, but were not permitted to record $1.5 billion
of fair value declines for Acacia’s paired liabilities. As a result, our
reported GAAP book value was negative $22.18 per share at December 31, 2007.
On
January 1, 2008, we adopted FAS 159, a new fair value accounting standard
that
permits us to mark-to-market both the assets and the liabilities of the
consolidated Acacia CDO entities going forward. FAS 159 also provided for
a
one-time cumulative effect balance sheet adjustment reflecting the initial
application of the standard. After giving effect to this adjustment, our
GAAP
book value was positive $23.18 per share at January 1, 2008. We believe this
new
accounting standard significantly improves the substantial disparity that
has
existed between GAAP and economic values.
We
continue to have no liquidity issues. Our liquidity position at December
31,
2007 was $297 million (see attached table for the calculation of our liquidity
position). Our excess capital position also remained strong at $282 million
at
December 31, 2007, a slight decrease from the $298 million at the end of
the
third quarter. During the fourth quarter, we raised $131 million of capital
from
stock issuance, $49 million of capital from portfolio cash flows in excess
of
our operating costs, and $7 million of capital from asset sales. We used
$123
million of capital for new investments and $80 million of capital for dividend
payments. Redwood derives its excess capital by calculating the cash available
for investment if it fully leverages its loans and securities in accordance
with
its internal risk-adjusted capital policies, and deducts its estimate of
cash
necessary to fund operations and working capital, and to provide for any
liquidity risks. Redwood includes its $150 million long-term subordinated
notes
as part of its capital base calculations.
Additional
Information
Additional
information about Redwood Trust can be found on our website at: www.redwoodtrust.com.
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. Our 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. These forward-looking statements are subject to risks
and
uncertainties, including, among other things, those described in our Annual
Report on Form 10-K for the year ended December 31, 2006 under the caption
“Risk
Factors.” Other risks, uncertainties, and factors that could cause actual
results to differ materially from those projected are described below and
may be
described from time to time in reports we file with the Securities and Exchange
Commission, including reports on Forms 10-K, 10-Q, and 8-K. We undertake
no
obligation to update or revise any forward-looking statements, whether as
a
result of new information, future events, or otherwise.
Important
factors, among others, that may affect our actual results include: changes
in
interest rates; changes in prepayment rates; general economic conditions,
particularly as they affect the price of earning assets and the credit status
of
borrowers; the availability of high quality assets for purchase at attractive
prices; declines in home prices; increases in mortgage payment delinquencies;
changes in the level of liquidity in the capital markets which may adversely
affect our ability to finance our real estate asset portfolio; changes in
liquidity in the market for real estate securities, the re-pricing of credit
risk in the capital markets, rating agency downgrades of securities and
increases in the supply of real estate securities available for sale, each
of
which may adversely affect the values of securities we own; the extent of
changes in the values of securities we own and the impact of adjustments
reflecting those changes on our income statement and balance sheet, including
our stockholders’ equity; our ability to maintain the positive stockholders’
equity necessary to enable us to pay the dividends required to maintain our
status as a real estate investment trust for tax purposes; and other factors
not
presently identified. This press release may contain statistics and other
data
that in some cases have been obtained from or compiled from information made
available by servicers and other third-party service
providers.
Liquidity
Position
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(In
Millions)
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December
31,
2007 |
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Unrestricted
cash
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$290
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Unsecuritized
residential loans
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5
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AAA-rated
residential securities
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10
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Liquid
assets
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305
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Redwood
debt
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(8)
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Net
liquidity position
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$297
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