CBL Franklin Core ETF Portfolio

Note: All amounts in Canadian dollars unless otherwise indicated.

2014 Highlights

• Gross loans receivable of $831 million as at December 31, 2014, up 118% year over year
• Average gross loans receivable of $546 million, up 117% year over year
• Recognized $22.6 million of income resulting from clarifying terms of a guarantee from Catalyst Funds applicable to a substantial portion of loans outstanding at December 31, 2014
• Earnings per share (diluted) of $1.03 an increase of $1.30 year over year
• Achieved gross yield of 20.3%
• Obtained a US$200 million unsecured subordinated bridge facility from Catalyst Funds to fund growth
• Acquired remainder of Catalyst Fund IV's participation interest ($50 million of equity) on a basis accretive to earnings

TORONTO, March 30, 2015 /CNW/ - Callidus Capital Corporation ("Callidus" or the "Company") (TSX: CBL), a provider of flexible and innovative asset-based loans, primarily to distressed or troubled companies, announced today an update on the current status of its business and provided its financial results for the quarter and year-ended December 31, 2014¹.

"2014 was a transformational year for Callidus. I am very proud of the team; all areas of the business from originations, to underwriting, to the collateral analysts, field examinations and finance / accounting teams performed exceedingly well and above expectations during 2014. That includes both the periods leading up to and subsequent to our initial public offering in April 2014. Callidus doubled its loan book ahead of schedule announced at the time of the IPO, while adhering to very stringent credit criteria. Callidus protected gross yields on our core products while expanding our new product - Callidus Lite.  Our pipeline of new loans remains strong.  We continue to execute on our financing strategy in a measured and deliberate way and, as we grew, we secured additional financing to support that and future growth. 

We are thankful for the support of our investors, who have provided us access to the public capital markets. That access to public market capital has allowed us to execute on our business plan and accelerate growth in a clearly underserved and growing market. Prior to the IPO, Callidus' growth was limited by the concentration limits of each of the Catalyst Funds' documents.

Looking forward, we will continue to execute on our growth strategy by following the six areas of growth noted in the past, including driving organic growth in Canada, pushing forward on the expansion of Callidus Lite, expansion into the U.S. and looking opportunistically at the acquisitions of loan portfolios," said Newton Glassman, Callidus' Executive Chairman and Chief Executive Officer.

"Our results demonstrate the effectiveness of our business model and platform as a senior secured, primarily distressed, asset-based lender. We provide financing to companies, including those undergoing formal and informal financial restructurings; real businesses that because of a 'transitional' event, have lost access to conventional sources of financings. Our other area of business is in providing growth capital otherwise unavailable. We are senior secured lenders (at the top of the balance sheet) and we believe that both demand facilities and the requirement for dominion over cash are powerful structural features of our loans to mitigate a number of key risks. We underwrite what conventional lenders may view as the 'downside' case, and margin against the realizable value of assets as we target unlevered gross yields in the 20% range.

We continued to build out our lending platform throughout 2014 by continuing to add to a number of our functional teams to ensure we had the resources necessary to manage anticipated growth in our loan portfolio while adhering to our stringent credit criteria," said David Reese, Callidus' President and Chief Operating Officer, "further, we are pleased to report that we have hired an additional Vice President, Underwriting, a Vice President, Operations and an additional Collateral Analyst, who all come to us from a competitor that has announced it will be closing its business."

Current state of the business, as at March 27, 2015:

• Gross loans receivable of $883 million, with total loan facilities of approximately $1.2 billion.
• Pipeline of potential new loans continues to range from approximately $450 million to $600 million, notwithstanding portfolio growth to date.
• Signed back term sheets of $199 million, up $27 million (approximately 16% quarter over quarter) from what was reported in Q3 2014.  Historically, Callidus has closed on approximately 60% to 80% of signed back term sheets.
• Liquidity of $225 million consisting of $69 million of cash and cash equivalents and $156 million in available undrawn credit facilities.
• Total debt (net of cash and cash equivalents) of $382 million, or 44% of gross loans receivable.
• Management estimates net income of approximately $90 million and an ROE of 18% would have been achieved if the average gross loans receivable of $876 million had been outstanding for a full year.²

In addition to new loans, from December 31, 2014 to March 27, 2015, $18 million in net new funding was provided to existing borrowers.

As at March 27, 2015, Callidus had 35 loans outstanding, the largest of which was a US$95 million facility (of which approximately US$40 million is outstanding), and the smallest of which was a $3 million facility. The average loan amount funded was $25 million, up $3 million (approximately 14%) from Q3 2014.

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

• Gross loans receivable of $831 million as at December 31, 2014, up 27% compared to Q3
• Average gross loans receivable of $719 million for the quarter, up 18% compared to Q3
• Gross yield of 18.6%, down from 20.0% due primarily to the increased proportion of Callidus Lite loans in the portfolio
• Adjusted net interest income of $24.8 million, up 6% compared to Q3
• Net income of $21.0 million, up 59% compared to Q3
• Earnings per share (diluted) of $0.42, up 56% compared to Q3

During the fourth quarter, two new loans totalling $96 million in credit facilities were closed and $46 million in net funding was advanced to existing borrowers. No loans were fully repaid during the fourth quarter although there were some partial permanent repayments.

Financial Highlights

Notes:

Fourth Quarter of 2014
For the quarter, total revenue increased $11 million and adjusted net interest income increased $8 million from the same period in the prior year, as a result of a 115% increase in the average loan portfolio outstanding to $719 million in the current quarter offset partially by a lower gross yield.

Net income increased $26 million and earnings per share (diluted) increased $0.63 from the same period in the prior year.  The movement in earnings per common share was attributable to portfolio growth and to full repayment of the principal balance of the participating debenture (repaid pursuant to the IPO).  Repayment of the participating debenture and related transactions of the initial public offering resulted in profitability in the current year. This was offset partially by personnel additions in contemplation of additional future growth.

Full Year December 31, 2014
Total revenue increased $46 million and adjusted net interest income increased $38.6 million from the prior year, primarily as a result of a $295 million (118%) increase in the average loan portfolio outstanding to $546 million which was partially offset by a decrease of 0.9% in the gross yield to 20.3% for the year.

Net income increased $47.0 million and earnings per share (diluted) increased $1.30 from the prior year. The movement in earnings per common share was primarily attributable, to portfolio growth and to full repayment of the principal balance of the previously discussed participating debenture. 

On a pro-forma basis, if the capital structure at December 31, 2014 existed throughout the entire year, Callidus would have recorded adjusted net interest income of $100 million, net income of $58 million, earnings per share (diluted) of $1.42 and an ROE of 17%.

Loan Portfolio
The Corporation's loans are diversified across a variety of industries, with the "technology and hardware" industry and the industrials industry comprising the largest segments. The largest loan in the "technology and hardware" industry is to a company whose loan is secured primarily by investment grade accounts receivable. Callidus will often target sectors that are experiencing a downturn as such borrowers may be under financial pressure and may be unable to access capital from traditional lenders.

In connection with managing and monitoring its loan portfolio, Callidus establishes what it calls a "watch list", borrowers with a deteriorating financial condition or that otherwise meet certain credit and / or operational criteria warranting closer monitoring and supervision. Callidus takes a more proactive approach to ensuring compliance with loan terms and obligations, in turn while allowing the Company to thereafter better manage the risk of default and / or loss for watch list accounts. As of December 31, 2014, there were8 loans that were on the Company's watch list and these loans represented 23% of gross loans receivable. As of December 31, 2014, of these 8 loans, a total specific loan loss provision of $22.8 million had been taken, and a corresponding $22.6 million asset related to the Catalyst guarantee was recorded. A further $6.3 million collective allowance was also recorded as of December 31, 2014.

It is not uncommon for Callidus to deal with borrowers undertaking some form of financial restructuring given the nature of its business.  As the Company operates primarily in the distressed lending sector, a formal or informal restructuring process offers an efficient tool to protect the collateral, often at higher yields than what would otherwise be available.  Callidus uses a variety of techniques to mitigate potentially challenging situations, ranging from a cooperatively managed out of court liquidation to a full court process in order to minimize any risk of loss. The Company's association with Catalyst, the performance leader in the Canadian distressed private equity sector and one of the best in the world, provides immense value. As of December 31, 2014, there were 5 of 32 loans that were going through a formal restructuring process representing 17% of gross loans receivable. As of December 31, 2014, for these 5 loans, a total loan loss provision of $22.3 million had been taken (part of the $22.8 million loan loss provision referred to above) and a corresponding $22.1 million asset (part of the $22.6 million asset referred to above) related to the Catalyst guarantee was recorded, resulting in a net $0.2 million exposure for Callidus. The difference between the loan loss provisions of $22.8 million and the $22.3 million noted above is related to a loan that was not going through a formal restructuring process, and as a result of being added to the watch-list prior to its first renewal, is eligible for full coverage under the guarantee.

Since 2006, Callidus has advanced 93 loans representing total credit facilities of $1.8 billion of which 58 loans have been fully repaid or realized. Of the 58 loans, 3 resulted in an aggregate loss of $4 million (less than 70bps since 2006 of realized losses based on commitments).  In addition, of the 58 loans, 5 went through a form of restructuring and were fully repaid. The balance of the 50 loans were fully repaid in the normal course. As at March 27, 2015, 35 loans are outstanding representing total credit facilities of approximately $1.2 billion. In the current portfolio, 7 loans are going through a form of restructuring and one loan will be considered as an asset held for sale. Further, as disclosed in the MD&A, the duration of our current portfolio is in line with expectations in terms of total aggregate credit facilities and number of loans.

As of December 31, 2014, the portfolio included 3 companies directly or indirectly involved in the oil and gas industry, representing 13% of gross loans receivable. As of December 31, 2014, for these loans, a total loan loss provision of $0.5 million (part of the $22.8 million loan loss provision referred to above) and a corresponding $0.5 million (part of the $22.6 million asset referred to above) related to the Catalyst guarantee was recorded.

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.

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¹ Amounts expressed are before derecognition, unless otherwise indicated.
² Calculated on a consistent basis as described in Management's Discussion and Analysis ("MD&A") for the period ended December 31, 2014.

SOURCE Callidus Capital Corporation