Callidus Capital Corporation Clarifies Disclosure Regarding Financing and Proposed Acquisition of Participation Interest

TORONTO, Dec. 5, 2014 /CNW/ - Callidus Capital Corporation ("Callidus" or the "Company") (TSX: CBL) today provided further clarification regarding the previously announced bridge loan facility and the potential acquisition of the participation interest in Callidus' loan portfolio from investment funds managed by The Catalyst Capital Group Inc. (the "Catalyst Funds").

As previously announced, the Catalyst Funds have offered Callidus the opportunity to purchase the Catalyst Funds' $50 million participation interest in the Company's loan portfolio.  The Catalyst Funds' participation interest is currently derecognized from Callidus' balance sheet for the purposes of IFRS.  The proposed acquisition would result in approximately $81 million of loans that are currently derecognized coming on to Callidus' balance sheet and management has therefore determined that the acquisition of the participation interest would be accretive to earnings by removing the 14%¹ derecognition from the net income relating to that participation interest.  Furthermore, management has determined that at any recent trading price of the Company's common shares, the acquisition would be accretive to earnings per share as well.

As disclosed in the Company's prospectus in connection with its IPO, in the event the Catalyst Funds wish to sell any participation interest in the loan portfolio at any time, they must offer that interest to Callidus for a purchase price equal to the funded amount of the participation interest (in this case, $50 million) without any premium, notwithstanding that the loan participations have a market value in excess of their funded amounts.   Additionally, as with all past and future acquisitions of a participation interest from a Catalyst Fund, the Catalyst Funds will guarantee the principal amount associated with  the participation interests in the event that realization steps are taken before the loan is renewed by Callidus' credit committee. 

Management of Callidus has recommended that the participation interest be purchased by Callidus, but the Callidus board has not yet determined whether to acquire the participation interest and, if so, whether to use cash or shares to satisfy the purchase price.  Management's recommendation is based on the following: a) the purchase is significantly accretive to earnings; and b) the principal guarantee from the Catalyst Funds eliminates the risk to principal associated with the participation interest until such time as Callidus' Credit Committee makes a determination to renew the loan. Management has also recommended that the purchase price be paid in common shares as long as it remains accretive to earnings as Callidus continues to grow at a rapid rate while simultaneously experiencing a robust deal pipeline, that preservation of cashes the best approach for all existing Callidus shareholders.   The ultimate determination, however, will be made by Callidus' independent directors. 

The potential acquisition of the $50 million participation interest has been disclosed by Callidus since the IPO.

Also as previously disclosed, the Catalyst Funds have provided the Company with a subordinated bridge loan facility, currently in the principal amount of USD $200 million, of which approximately USD $75 million has been advanced to date. Callidus elected to avail itself of the bridge loan, as opposed to raising funds through an equity or similar offering, as management and the board determined the cost of equity to be unreasonably high as a result of the significant increase in the Company's earnings. Furthermore, management believes that Callidus' senior loan facility in combination with the bridge loan provide ample capital for the Company in both the short and long-term.  As previously disclosed, management has determined that, at leverage rates of approximately 62%, the Company would have sufficient capital to finance its current growth plan of doubling the size of its loan portfolio ever two to three years without the need to issue equity, or equity linked securities.  

Management believes that the bridge loan benefits all Callidus shareholders as it avoids Callidus incurring what management considers to be the extraordinary cost of equity funding reflected currently in what the management team believes to be an undervalued share price.  The intended result of the bridge loan facility is to ensure all shareholders benefit proportionately to their holdings from Callidus avoiding incurring the high cost of capital associated with an equity or equity linked offering at this time.   Furthermore, management believes that at even a 62% leverage level, Callidus would be conservatively financed as compared to public comparables while maintaining what management believes to be a more secure portfolio.

Finally, as discussed in the previous press release, notwithstanding the growth in Callidus' loan book, the actual losses experienced in the portfolio have gone down—both in absolute amounts and as a percentage of gross loans receivable since the time of the IPO.   Management believes this reflects its conscious effort to maintain, if not improve, credit quality while continuing to grow the business.

About Callidus Capital Corporation

Established in 2003, Callidus Capital Corporation is a Canadian company that specializes in innovative and creative financing solutions for companies that are unable to obtain adequate financing from conventional lending institutions. Unlike conventional lending institutions who demand a long list of covenants and make credit decisions based on cash flow and projections, Callidus credit facilities have few, if any, covenants and are based on the value of the company's assets, its enterprise value and borrowing needs. Callidus employs a proprietary system of monitoring collateral and exercising control over the cash inflow and outflows of each borrower, enabling Callidus to very effectively manage any risk of loss.

Non-IFRS Measures

This press release contains references to gross loans receivable, which is not a generally accepted accounting measure under International Financial Reporting Standards and therefore the definition used by the Company may differ from the definition of such term used by other entities. The Company defines "gross loans receivable" as the sum of (i) the aggregate amount of loans receivable on the relevant date, (ii) the loan loss allowance on such date, (iii) the book value of assets held for sale as they appear on the balance sheet, and (iv) discounts on loan acquisitions. Management believes that gross loans receivable is a useful supplemental measure that may assist purchasers in assessing the financial performance and the cash anticipated to be generated by the Company's business. Gross loans receivable should not be considered as the sole measure of the Company's performance and should not be considered in isolation from, or as a substitute for, analysis of the Company's financial statements.

Forward Looking Statements

Certain statements made herein contain forward-looking information. Forward-looking statements in this release include those related to expected growth in the loan portfolio, repayment of the bridge loan and sufficiency of sources of liquidity.   Such forward-looking statements involve known and unknown risks, uncertainties and other factors and assumptions that may cause the actual results, performance or achievements of Callidus, or developments in Callidus' business or industry, to differ materially from the anticipated results, performance or achievements or developments expressed or implied by such forward-looking statements. Such factors and assumptions include, but are not limited to, Callidus' inability to successfully originate new loans due to competitive factors or adverse developments in the asset-based loans market; the availability of additional financing on acceptable terms, or at all, being dependent on capital market conditions and the operating performance of Callidus; the continued availability of funding under bridge loan facility provided by Catalyst Funds and Callidus' existing loan facilities; and other factors and assumptions discussed in the section entitled "Risk Factors" in documents filed with the Ontario Securities Commission and other securities commissions across Canada, including Callidus' prospectus dated April 15, 2014. If any such risks actually occur or assumptions prove to be incorrect, Callidus' business, financial condition or results of operations could be materially adversely affected.  Readers are cautioned not to place undue reliance upon any such forward-looking statements, which are made as at the date of this press release and Callidus does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required by applicable securities laws.

SOURCE: Callidus Capital Corporation