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.
__________________________
1 As previously disclosed in Management's Discussion and
Analysis for the three and nine months ended September 30,
2014
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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