CBL Franklin Core ETF Portfolio

TORONTO, Nov. 6, 2014 /CNW/ - Callidus Capital Corporation ("Callidus" or the "Company") (TSX: CBL), a provider of flexible and innovative asset-based loans, announced today an update on the current status of its business and provided its 2014 third quarter financial results, for the three and nine-month period ended September 30, 2014[1].

We continue to see exciting growth and opportunities in each of our targeted strategic growth areas.

Canadian Market Opportunity - The IPO and our status as a public company has increased our profile in the Canadian market. We are seeing increased interest from prospective clients which has resulted in an increase in our pipeline. In addition, with better access to capital and a strong balance sheet, we are better positioned to respond expeditiously to a variety of client loan requirements including size and structure. We continue to believe that the Canadian market offers an attractive opportunity for our core lending product.

US Market Opportunity - As discussed in the IPO prospectus, we are active in the U.S. in originating, managing and underwriting U.S. based loans. Our new U.S. originator has broadened the range and scope of opportunities that we are seeing and we expect our activity in the U.S. to advance. Although the U.S. market has a different competitive dynamic and different bankruptcy process than Canada, we have the track record and experience to successfully operate in this important strategic market.

Callidus Lite - We are pleased to report continued growth in the deployment of Callidus Lite as an expansionary loan product. Year-to-date, we have successfully closed three Callidus Lite loans representing $62 million in commitments. As previously disclosed, this product offering provides an attractive alternative for borrowers seeking growth capital or those with an improved risk profile as compared to borrowers of the Callidus legacy products. We continue to believe that there is a significant opportunity as a result of a discontinuity in the credit markets where borrowers cannot otherwise source potential capital and this product fills this gap. This has the potential of significantly increasing our activity in the Canadian and U.S. markets.

Portfolio Acquisitions - We also continue to closely monitor the market for portfolio acquisitions and will pursue these acquisitions opportunistically.

Additionally, we are now actively exploring potential corporate acquisitions and believe that there are a number of complementary and highly synergistic businesses that could fit with our strategic and operational objectives. Although no such transactions are imminent, we believe that we have the management capabilities to identify, negotiate and integrate these acquisitions. 

Further, Catalyst Fund Limited Partnership IV has advised Callidus that it intends to sell its $50 million participation interest in the loan portfolio on or before December 31, 2014. The participation agreement between Callidus and Catalyst Fund Limited Partnership IV provides the Company the option to acquire all or part of the interest in the loan portfolio at par plus accrued interest and fees. Callidus expects to complete this acquisition of 100% of the remaining participation interest thus eliminating the need for accounting for derecognition of this $50 million participation interest on a go forward basis.  

In addition to pursuing these strategic growth initiatives, as disclosed previously, we hired new originators in Seattle, Washington to cover the Pacific coast, British Columbia, and Alberta, and in Montreal to cover each of the Quebec and Eastern Canadian markets. These 2 new originators are delivering on our expectations. Both originators have identified and advanced a number of prospective opportunities. We are working on a number of signed back term sheets sourced by these orginators and expect to close these financings over time. Additionally, as disclosed previously, we have added to the underwriting, finance and field examination groups to support our existing platform and our increased lending activity. 

Overall, we are very pleased with the performance of our business across a number of operating and financial metrics. Our loan book continues to grow ahead of our expectations while we continue to enforce our very strict lending criteria. We have a differentiated and unique offering for borrowers and the successful growth of the business demonstrates that we are tapping into the burgeoning demand for our core lending products.  In addition, we are pleased that we are delivering on our required return thresholds as evidenced by our gross yields while maintaining disciplined underwriting standards.  The operating leverage in our business is compelling as demonstrated by the improvement in our adjusted EBITDA margin from 78% on the IPO to 80% for the three months ended September 30, 2014.  We continue to generate significant cash flow which is being redeployed in the growth of our business.

Current state of the business, as at November 4, 2014:

• Gross loans receivable of $684 million, with an aggregate committed amount of $856 million
• Pipeline of potential new loans has been ranging from approximately $500 million to $600 million and is currently in the upper end of that range
• Signed back term sheets of $172 million.  Historically, Callidus has closed on approximately 60% to 80% of signed back term sheets. Callidus closed on loans with aggregate commitments of $169 million in the third quarter, as compared to $126 million in the second quarter. The number of closings in the third quarter was somewhat adversely affected by the focus on integrating and training new hires
• Callidus cash position will support $188 million of additional loans upon completion of anticipated changes to the financing arrangements at 60% leverage.  Management has concluded that although a long term leverage target of 40% is desirable, in the shorter run leverage could be allowed to exceed 70%.  Catalyst managed funds have now committed to provide such leverage to fund continued growth if and when required by Callidus due to unfavourable market conditions for an equity offering (i.e. the cost of capital being greater than that at the time of the IPO)
• Total debt of $246 million (before derecognition), or 36% of gross loans receivable (before derecognition), which we could increase to approximately 38% based on the estimated undrawn availability
• Management estimates net income of approximately $62 million after derecognition, had the average gross loans receivable of approximately $684 million been outstanding for a full year²

In addition to new loans, from September 30, 2014 to November 4, 2014, $29 million in net new funding was provided to existing borrowers.

As at November 4, 2014, there were 30 loan commitments, the largest of which was a US$75 million commitment, and the smallest of which was a $3 million commitment. The average loan amount funded was $23 million.

Highlights from the third quarter, relative to the second quarter:

• Gross loans receivable of $655 million as at September 30, 2014, up 22%
• Average gross loans receivable of $609 million for the quarter, up 21%
• Gross yield of 20.0%, down from 20.8%
• Adjusted EBITDA margin of 80.4%, up from 79.4%
• Adjusted net interest income of $23.5 million, up 18%
• Net income of $13.2 million, up 74%
• Earnings per share (diluted) of $0.27, up 50%

During the third quarter, 6 new loans totalling $174 million in commitments were extended and 2 loans were fully repaid totaling $15 million. Additionally, $45 million in net funding was advanced to existing borrowers.

Financial Highlights

Third Quarter of 2014

During Q3 of 2014, total revenue increased $13 million and adjusted net interest income increased $11 million from the same period in the prior year, as a result of a $351 million (136%) increase in the average loan portfolio outstanding to $609 million in the current quarter.

Adjusted EBITDA margin increased 3.2% (from 77.2% to 80.4%) as a result of benefitting from operating leverage in the business due to growth in the loan portfolio.

Net income increased $13 million and earnings per share (diluted) increased $0.24 from the same period in the prior year.  The movement in earnings per common share was attributable to full repayment of the principal balance of the participating debenture that resulted in profitability in the current year-to-date period as a result of the initial public offering and related transactions.

Year-to-Date September 30, 2014

Year-to-date, total revenue increased $35 million and adjusted net interest income increased $31 million from the same period in the prior year, as a result of (i) a $271 million (118%) increase in the average loan portfolio outstanding to $501 million year-to-date, and (ii) a 0.2% increase in the gross yield to 20.6% year-to-date.

Adjusted EBITDA margin increased 4.5% (from 75.3% to 79.8%)  as a result of benefitting from operating leverage in the business due to growth in the loan portfolio.

Net income increased $22 million and earnings per share (diluted) increased $0.61 from the same period in the prior year.   The movement in earnings per common share was attributable to full repayment of the principal balance of the participating debenture that resulted in profitability in the current year-to-date period as a result of the initial public offering and related transactions.

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.

Forward-Looking Statements

Certain statements made herein contain forward-looking information. Although Callidus believes these statements to be reasonable, the assumptions upon which they are based may prove to be incorrect. Furthermore, the forward-looking statements contained in this press release 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