CBL Franklin Core ETF Portfolio

Note: All amounts in Canadian dollars unless otherwise indicated.

First Quarter 2015 Highlights

• Total revenue of $35 million for the quarter, up $6 million, or 20% from previous quarter and up, $14 million, or 70% from same quarter last year.
• Average loan portfolio outstanding was $864 million, an increase of $146 million or 20% from the previous quarter and up $459 million or 113% from the same quarter last year.
• Gross loans receivable of $906 million at March 31, 2015, up $75 million, or 9%, from previous quarter and up $489 million, or 117% from same quarter last year.
• Adjusted net interest income of $27.1 million, up 42% compared to Q1 2014, and up 9% compared to Q4 2014.
• As at March 31, 2015, the estimated collateral value coverage on net loans receivable was approximately 161% on a portfolio basis with a range between 100% and 250% on an individual loan basis.  Furthermore, the watch-list loans had an asset coverage of 112% and non-watch-list loans had an asset coverage of 176%.  It should be noted that there is no cross collateralization of the asset coverage as between borrowers.

TORONTO, May 13, 2015 /CNW/ - Callidus Capital Corporation ("Callidus" or the "Company") (TSX: CBL), reported strong loan portfolio and revenue growth in the first quarter of 2015.  Callidus, which provides flexible and innovative asset-based loans, primarily to growth and distressed or troubled companies, today reported its financial results for the quarter ended March 31, 2015, and provided an update on the current state of its business.

Newton Glassman, Executive Chairman and Chief Executive Officer of Callidus said "We again achieved strong performance against many of our key metrics.  We are particularly pleased with the significant level of growth in our loan portfolio while maintaining solid credit quality.  The continued growth of Callidus Lite will improve overall credit quality, lower the provision for credit loss while maintaining ROE and net income targets since Callidus Lite loans support higher leverage that will offset the dilution to a blended gross yield."

"We want to address head-on our performance regarding earnings related metrics.  To assist in attaining our ROE target we will slowly increase our leverage as our loan portfolio continues to grow.  As previously mentioned, we are confident in our ability to deliver against our stated long term goals, recognizing our quarter-over-quarter performance may be lumpy."

"These results clearly underscore the integrity of our business model and platform as a senior secured asset-based lender to primarily growth and distressed companies, and the effectiveness of our growth strategy focused on driving organic growth in Canada, the expansion of Callidus Lite, tapping the sizable U.S. market, and identifying opportunities to acquire loan portfolios on advantageous terms."

Current state of the business, as at May 11, 2015:

• With closings that management believes are imminent, we estimate gross loans receivable of $961 million, with total loan facilities of approximately $1.2 billion. As at May 11, gross loans receivable stood at $910 million.
• The pipeline of potential new loans typically ranges from approximately $450 to $600 million. As an indicator of the size of the market, the pipeline has recently increased dramatically to $1.1 billion, recognizing that not all these potential transactions will result in signed back term sheets and close. Included in this $1.1 billion figure are seven  recently identified potential transactions including two significant proposed transactions; one to a company going through a restructuring process and another to a proven financial sponsor in support of a growth opportunity transaction.
• Signed back term sheets of $208 million, up $9 million (approximately 5% quarter over quarter) from what was reported in Q4 2014.  Historically, Callidus has closed on approximately 60% to 80% of signed back term sheets.
• Liquidity of $176 million consisting of $54 million of cash and cash equivalents and $122 million in available undrawn credit facilities.  In addition to the $176 million above, there is also $156 million now available from Catalyst Fund V's first closing.  Fund V availability would increase to approximately $360 million, assuming Fund V achieves its "hard cap" of US$1.5 billion.
• Total debt (net of cash and cash equivalents) of $391 million, or 43% of gross loans receivable.
• Management estimates net income of approximately $80 million and an ROE of 17-19% would have been achieved if the average gross loans receivable of $910 million had been outstanding for a full year.
• As at May 11, 2015, Callidus had 37 loans outstanding, the largest of which was a US$95 million facility (of which approximately US$59 million is outstanding), and the smallest of which was a $2 million facility. The average loan amount funded was $25 million, down $1 million (approximately 4%) from Q4 2014.
• In April 2015, the Company increased the amount of its existing Revolving Credit Facility by US$37.5 million to US$300 million in the aggregate. The increase was the result of an increased commitment from an incumbent bank in the syndicate and a new commitment from an international bank.
• In addition to 2 new loans representing $40 million in total credit facilities, $15 million in net repayments were received from existing borrowers.
• Subsequent to quarter end, we received repayments for 2 loans totaling $22 million consisting of (i) an $8 million partial permanent repayment of a loan to a borrower that we had previously disclosed had emerged from CCAA protection as was anticipated and as a result of this and a $16 million partial repayment received and disclosed previously, the borrower has a much improved and sustainable capital structure that we believe may soon support conventional financing; and (ii) a $14 million (88% of the outstanding loan to that borrower) partial permanent repayment of another loan.

Financial Highlights

Highlights of the first quarter, relative to the last quarter:

• Adjusting for: (i) the difference between the statutory tax rate of 26.5% and our effective tax rate of 30% and (ii) a temporary one-time revenue adjustment of US$1 million resulting from a State statutory issue that we anticipate will reverse in future quarters, our EPS (diluted) was $0.34.
• In January 2015, the Company increased the amount of its revolving senior credit facility by US$62.5 million to US$262.5 million in the aggregate and extended its term to January 2019.
• Provision for loan losses for the quarter decreased $2.5 million from the same quarter last year, while write-offs were nil. Relative to year end, our specific provision for credit losses has decreased by $0.4 million. The decrease was due to the reversal of specific provisions for $0.7 million for two watch-list loans as a result of improved underlying collateral positions offset partially by an increased provision for 2 watch-list loans in the period of $0.3 million.
• In the quarter, 3 new loans representing $68 million in total credit facilities were extended. In addition to these new loans, $31 million in net funding was provided to existing borrowers.
• Earnings per share (diluted) of $0.31, a decrease from $0.42 last quarter, recognizing that Q4 2014 EPS was positively affected by the net impact of the clarification of the Catalyst guarantee and the adoption of the collective allowance.
• With the continued success of Callidus Lite, gross yield for the quarter was within our target range at 17.9%, a decrease from 20.4% for the same quarter last year, and from 18.6% for the fourth quarter of 2014.  Our yield was 19% on our core product and 15% on Callidus Lite. The decrease in yield on our core product was due primarily to the temporary one-time revenue adjustment of US$1 million noted previously.
• ROE was 13.6% compared with 19.5% in the fourth quarter of 2014. The decrease was primarily attributable to the positive net impact to ROE for Q4 2014 of the clarification of the Catalyst guarantee and the adoption of the collective allowance noted previously.
• Net income was $16.0 million, down from $21 million in Q4 and up significantly from a loss in same period last year. Again, the decrease was primarily attributable to the positive net impact to Q4 2014 net income of the clarification of the Catalyst guarantee and the adoption of the collective allowance noted previously.

Loan Portfolio
As of March 31, 2015, the loan portfolio consisted of 35 loans with an aggregate gross loans receivable amount outstanding of $906 million. This compares with 32 loans and $831 million outstanding as of December 31, 2014. As of March 31, 2015, the largest loan facility was US$95 million and the smallest loan facility was $2 million.  A higher component of Callidus Lite loans, which are used as an origination and retention product for borrowers with improving credit quality, produces a stronger credit profile for the portfolio.

As of March 31, 2015, the loan portfolio was distributed 64% in Canada and 36% in the U.S. by dollar amount funded.

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 and insured accounts receivable and inventory. 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 March 31, 2015, there were 9 loans that were on the Company's watch-list and these loans represented 26% of gross loans receivable. As of March 31, 2015, of these 9 loans, a total specific loan loss provision of $22.4 million had been taken, and a corresponding $22.0 million asset related to the Catalyst guarantee was recorded. As of March 31, 2015 the collective allowance was $ 6.4 million.

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 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 March 31, 2015, there were 5 of 35 loans that were going through a formal restructuring process representing 15% of gross loans receivable. As of March 31, 2015, for these 5 loans, a total loan loss provision of $1.6 million had been taken (part of the $22.4 million loan loss provision referred to above) and a corresponding $1.6 million asset (part of the $22.0 million asset referred to above) related to the Catalyst guarantee was recorded.

Since 2006, Callidus has advanced 95 loans representing total credit facilities of $1.8 billion of which 58 loans have been fully repaid or realized. Of the 58 loans, 50 loans were fully repaid in the normal course.  The other 8 loans went through a form of restructuring, with 5 loans fully repaid and the remaining 3 loans resulted in an aggregate loss of $4 million (less than 70bps since 2006 of realized losses based on commitments). As at May 11, 2015, 37 loans are outstanding representing total credit facilities of approximately $1.2 billion. In the current portfolio, 5 loans are going through a form of restructuring. As of March 31, 2015, the portfolio included 3 companies directly or indirectly involved in the oil and gas industry, representing 11% of gross loans receivable. As of March 31, 2015, for these loans, no loan loss provision or corresponding guarantee was recorded.

Catalyst Fund V Participation
As noted in our press release of April 27, 2015, Catalyst recently announced the first closing of its most recent fund, Catalyst Fund Limited Partnership V ("Catalyst Fund V"), with US$650 million of capital commitments. Catalyst Fund V is targeting aggregate commitments of US$1.25 billion with a hard cap of US$1.5 billion.

In accordance with the terms of the participation agreement, Catalyst Fund V is now entitled to participate in the funding of new loans originated by Callidus.  This provides Callidus with access to additional funds to finance the expansion of our loan portfolio at cost and without standby fees on those funds.

By funding a portion of the growth, Catalyst Fund V will acquire a participation interest in the new loan portfolio and will assume all of the risks and rewards associated with that participation interest.  The portion of the new loan portfolio owned by Fund V will be derecognized from Callidus' balance sheet for the purposes of IFRS.

Callidus will also have the first right to acquire Catalyst Fund V's interest in the loan portfolio, dollar for dollar to the funded amount plus accrued and unpaid interest.  If Callidus acquires Catalyst Fund V's interest in the loan portfolio, Fund V will also provide a principal guarantee of its percentage ownership interest in the relevant loans.

In addition, any increase in Fund V's participation interest as it issues more units will mean its principal guarantee will proportionately cover a larger proportion of the Callidus loan portfolios, thereby reducing Callidus' risk with respect to those loans.

Normal Course Issuer Bid
On May 12^th, Callidus announced that the Toronto Stock Exchange ("TSX"), had accepted the Corporation's notice of intention to undertake a normal course issuer bid.  Under the terms of the normal course issuer bid, Callidus may acquire up to 2,561,396 of its common shares, representing 5% of the 51,227,920 common shares comprising Callidus' total issued and outstanding common shares as of May 11, 2015.

Callidus also confirmed its plans to enter into an automatic share purchase plan with GMP Securities L.P. for the purposes of conducting the normal course issuer bid. The plan will ensure that Callidus has no discretion over trading in respect of its common shares during the term of the normal course issuer bid.

Callidus announced its intention to submit a notice to undertake the normal course issuer bid to the TSX on April 27, 2015. Callidus determined to undertake the normal course issuer bid after receiving advice of its financial advisors as, in the opinion of management, its common shares have recently traded in a price range that does not reflect the underlying value of the Corporation.  Callidus believes that any purchases under the normal course issuer bid will benefit all persons who continue to hold common shares by increasing their equity interest in the Corporation.

Effective Tax Rate
As disclosed in prior quarters, our effective tax rate was higher than the statutory tax rate. This was due primarily to the tax treatment of share compensation expense. We anticipate that the effective tax rate will revert to the statutory tax rate over time, as share compensation expense decreases for the awards granted to date. This is due to a greater amount of share compensation expense recognized earlier, on a graded vesting basis over the three-year vesting period of the options.

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.

Conference call
Callidus will host a conference call to discuss Q1 2015 results on Thursday, May 14, 2015 at 8:30 a.m. Eastern Time.  The dial in number for the call is (647) 427-7450 or (888) 231-8191 (reference number: 37190283). A taped replay of the call will be available until May 21, 2015 at (416) 849-0833 or (855) 859-2056 (reference number: 37190283).

SOURCE Callidus Capital Corporation