| Item 1.01 | Entry into a Material Definitive Agreement. |
On August 4, 2023 (the “Dissolution Date”), Redwood Mortgage Investors VIII, L.P., a California Limited Partnership (“RMI VIII” or the “Partnership”), entered into a Plan of Dissolution for the Partnership (the “Plan of Dissolution” or the “Plan”) following the receipt of consents of limited partners approving the dissolution of the Partnership (the “Dissolution”) and the Plan of Dissolution as described in Item 5.07 below.
Pursuant to the Plan of Dissolution, Redwood Mortgage Corp. (“RMC”), as manager of the Partnership, will wind up the affairs of the Partnership commencing from the Dissolution Date until the complete liquidation of the Partnership’s assets and the termination of the Partnership in accordance with the Plan of Dissolution, the Partnership’s Sixth Amended and Restated Limited Partnership Agreement dated July 28, 2005, as amended (the “Partnership Agreement”), and the California Uniform Limited Partnership Act of 2008.
Under the Plan, the Partnership will cease making new loans and will only engage in business activities necessary or convenient to wind-up the Partnership’s business and distribute Partnership assets. As part of the wind-up activities, RMC, in its sole discretion, will liquidate the Partnership’s assets as promptly as is consistent with obtaining the current fair value thereof, which may include: (i) collecting loan payments from borrowers under existing loan terms; (ii) selling loans to third parties; (iii) selling loans to either or both general partners or their affiliates, subject to the limitations set forth in the Partnership Agreement; (iv) enforcing delinquent loans through foreclosure or negotiating settlements with the borrowers and/or any guarantors or other obligors on such loans; (v) selling any “real estate owned” (property acquired by foreclosure) held by the Partnership; and (vi) taking any other actions determined by RMC to be consistent with recovering the fair market value of any Partnership assets and authorized in the Partnership Agreement and the Plan. RMC may sell all, or substantially all, of the loans in the Partnership’s portfolio to one or more unaffiliated third party purchasers (a “Portfolio Sale”), provided RMC determines, in its reasonable judgment, that the applicable Portfolio Sale is in the interest of the Partnership and the limited partners taking into account the value of the loans in the portfolio being sold and the potential cost savings and other economic advantages gained from the sale of several loans in a single transaction rather than on a loan-by-loan basis.
Under the Plan, RMC is entitled to a dissolution fee equal to 7.0% of each Capital Distribution (as defined in the Plan) to be made to the limited partners over the course of the wind-up period (the “Dissolution Fee”). The Dissolution Fee is to be paid to RMC quarterly, on or by the last business day of each calendar quarter based on the expected Capital Distribution to be paid to the Limited Partners for such quarter.
In addition, effective as of the Dissolution Date: (i) all limited partners, including limited partners who previously elected not to receive periodic distributions of Partnership net income under the Partnership Agreement, will begin receiving quarterly distributions of the Partnership’s net income (if any); and (ii) all scheduled withdrawals of limited partner capital made pursuant to the Partnership Agreement will terminate in favor of quarterly pro rata withdrawals to all limited partners of cash received from the liquidation of Partnership assets and available to fund capital in accordance with the distribution provisions set forth in the Plan.
The foregoing description of the Plan of Dissolution does not purport to be complete and is qualified in its entirety by the full text of the Plan of Dissolution, a copy of which is attached as Exhibit 2.1 to this Current Report on Form 8-K (this “Current Report”) and is incorporated herein by reference.
Forward-Looking Statements
Statements contained in this Current Report that are not historical facts are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements relate to a variety of matters, including, without limitation, statements regarding plans for and execution of wind-up activities. These forward-looking statements are made on the basis of the current beliefs, expectations and assumptions of the management of RMI VIII and are subject to significant risks and uncertainty. Investors are cautioned not to place undue reliance on any such forward-looking statements. All such forward-looking statements speak only as of the date they are made, and RMI VIII undertakes no obligation to update or revise these statements, whether as a result of new information, future events or otherwise, except as may be required by law. These forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from what may be expressed or implied in these forward-looking statements, including, without limitation, unexpected costs, charges or expenses relating to or resulting from the Dissolution; litigation or adverse judgments relating to the Dissolution; risks relating to the completion of the wind-up activities in connection with the Dissolution, including the risk that the general partners might not be able to make and arrange for loan sales as part of the Plan of Dissolution; any changes in general economic or industry-specific conditions, including those which affect the value of loans held by RMI VIII; and factors generally affecting the business, operations and financial condition of RMI VIII, including the information contained in RMI VIII’s definitive consent solicitation statement filed with the Securities and Exchange Commission (the “SEC”) on June 6, 2023 (the “Consent Solicitation Statement”) and in RMI VIII’s Annual Report on Form 10-K for the year ended December 31, 2022, subsequent Quarterly Reports on Form 10-Q and other reports and filings with the SEC.
