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Distressed Lender Callidus Reports Second Consecutive Annual Loss

The company, a major holding of the private equity funds of Catalyst Capital Group, reported that its shareholder equity is now negative.

Callidus Capital Corp. — a Toronto-based, publicly traded distressed lender majority owned by private equity firm Catalyst Capital Group — reported a fourth-quarter net loss of C$115.4 million ($86.6 million), or C$2.02 per share, Monday. The firm and said it had faced “significant operating losses and negative cash flows from operations in the current and preceding year.” 

Callidus equity is a major holding for several of Catalyst’s private equity funds, which also guarantee some of Callidus’s loans. Catalyst is embroiled in numerous lawsuits with entities including rival investment firms, journalists, short sellers, and Callidus borrowers. It has faced media scrutiny of its investments, including Callidus, over the past year.

Catalyst’s private equity funds count several prominent U.S. and Canadian institutional investors as clients.

Callidus reported a net loss of C$183.6 million for 2018, or C$3.33 per share, for the whole of 2018. That’s down from 2017’s loss of C$218.5 million, or C$4.32 per share, but represents a second straight year of losses for the lender. Its fourth-quarter loss marks nine consecutive quarterly losses for Callidus, though it lost more in the year-ago quarter. The company’s quarterly revenue climbed from $53 million year-on-year to $76 million.

Callidus said its loan losses for the quarter were C$53.3 million and C$114.3 million for the year, of which approximately C$67 million related to one loan in the energy sector. Callidus said that “indications of impairment at four of the company’s businesses” led it to write off $56.3 million of goodwill in the quarter. 

The company reported that its shareholder equity — the difference between total assets and total liabilities — fell to negative $5.44 million, from $177 million in the year-ago quarter.

Callidus said in Monday’s earnings announcement that it requires “ongoing funding and support” from certain Catalyst limited partner funds. To that end, Callidus had previously announced on Friday that it had amended the terms of its financial agreements with Catalyst allowing it to extend the due date of a $250 million bridge loan made by Catalyst funds to Callidus. 

The loan is payable on demand as of January 1, but no demand for repayment can be made before June 30, 2020 if repayment of the loan in cash would compromise Callidus’s cash position, the company said. Callidus shares closed Monday at C$1.38, and were trading around C$1 as of 10am ET Tuesday. 

Callidus’s share price has fallen more than 90 percent since it went public in April 2014 at C$14 per share. Last month, Callidus announced that its interim CEO Patrick Dalton had resigned after four months. Dalton was filling in for Callidus chairman and CEO Newton Glassman, who is also founder and managing partner of Catalyst. Glassman is recovering from back surgery, according to the company. 

In Friday’s announcement, Callidus also said Catalyst agreed to advance Callidus up to an additional $35 million under the bridge loan “if the Company’s Board of Directors determines that the Company has liquidity issues that, in the absence of such advance, would bring into question the Company’s ability to continue as a going concern.” 

Catalyst’s funds waived compliance with the loan covenants as of the end of last year and also waived compliance with future financial debt covenants. Callidus retains the right to accrue all interest and fees payable under the bridge loan. 

In 2016, Callidus announced plans to take the company private. Glassman later said several borrowers had expressed an interest, and that National Bank Financial had valued the company at $18 to $22 per share. But a deal did not materialize. In December, Braslyn Ltd. — a division of the Tavistock Group and Callidus’s second-largest shareholder after Catalyst — revealed it had offered to buy out the remaining shares at $2 each. Callidus said it is still in discussions with Braslyn, but “there can be no assurance that a transaction will be completed.”

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