CBL Franklin Core ETF Portfolio

All amounts in Canadian dollars unless otherwise indicated.

• ROE was a record 29.2%, an increase from 13.9% in the prior quarter and 15.2% in second quarter 2015.
• Revenue of $45.9 million, decreased 7% ($3.6 million) from first quarter 2016 and increased 17% ($6.6 million) from second quarter 2015.
• Net income of $37.5 million, up 119% ($20.4 million) from the prior quarter and 104% ($19.1 million) from the prior year period.
• Earnings per share (diluted) of $0.73 per share more than doubled from comparative periods, increasing 115% ($0.39 per share) from last quarter and 103% ($0.37 per share) from the second quarter of 2015.
• Yield enhancements valued internally at $57.0 million with $34.8 million ($0.68 per share, pre-tax, diluted) of that amount taken into income in second quarter 2016.
• New securitization facility received provisional investment grade ratings during the quarter.
• Callidus to re-start growth in the loan portfolio in the next quarter; targeting doubling the portfolio in two to three years.
• Senior leadership team is strengthened with the addition of a Chief Credit Officer.
• Dividend increased almost 50% from $0.70 per share per year to $1.00 per share per year.
• Substantial Issuer Bid extended and purchase price increased to $16.10 per share in July in response to upward momentum in stock price.

TORONTO, Aug. 11, 2016 /CNW/ - Callidus Capital Corporation (TSX:CBL), ("Callidus" or the "Company"), today announced its unaudited financial and operating results for the second quarter ended June 30, 2016. 

"We achieved several milestones this quarter that add significant value to our business and create a strong platform for accelerating growth.  The most prominent developments are the addition of material yield enhancements to our portfolio performance and reporting, a new securitization facility that is expected to be finalized in the third quarter, the restarting of growth in our loan portfolio, and the strengthening of our executive team with the addition of an experienced Chief Credit Officer" said Callidus Executive Chairman and Chief Executive Officer Newton Glassman.   

"In addition these significant developments, the credit performance of our current portfolio continues to meet our expectations.  During the quarter we saw two of our clients fully repay their Callidus loans and refinance with conventional lenders.  Another loan emerged from creditor protection.  These are good examples of the effectiveness of our processes to identify, fund, monitor and aid in the recovery of businesses." added David Reese, President and Chief Operating Officer of Callidus.

Yield Enhancements

"Over one-third of the loans in our portfolio are generating yield enhancements, which are currently internally valued at $57.0 million and are already contributing to income.  While there will be some volatility in the value of the yield enhancements from quarter-to-quarter, we expect their overall value to grow with our loan portfolio." said Newton Glassman.

• Yield enhancements are generally no-risk, zero cost options that are granted to Callidus when the Company makes an accommodation to an existing borrower.
• The Yield Enhancements can take many forms, including revenue royalty streams, periodic fee arrangements, warrants and limited equity participations.
• Agreements have been finalized on thirteen loans in the portfolio.

New Securitization Facility

"We expect to initiate a new securitization facility with four investment grade tranches later this year.  It will provide us with additional financing at a significantly lower cost, and will further diversify our funding.  The new facility will become an increasingly larger part of our capital structure as our loan portfolio grows." added Newton Glassman. 

• When finalized, the new facility will be utilized as the primary source of funding for incremental growth.
• Debt with ratings and maturity similar to the new securitization facility is currently trading in a range that would represent approximately a 2% reduction in Callidus' cost of funds, compared with the rates Callidus is paying under the current financing facilities.
• Utilizing the facility is expected to expedite access to funding. It is anticipated that in the future, when debt is funded through this facility, the funding timeline will be reduced significantly - from the current eight to 12 weeks, to approximately two to four weeks.

Restarting Growth in the Loan Portfolio and Continuing the SIB

"We have held our loan book constant for the past two quarters, maintaining the ultimate flexibility to optimize the use of our cash and generate strong ROE.  With a significant build of liquidity over the last two quarters resulting from both strong cash from operations and the expected additional capacity from the new securitization facility, we expect to have more liquidity available to deploy than is required to complete our current Substantial Issuer Bid ("SIB") and potential NCIB.  As a result, we will be re-starting growth in our loan portfolio in the next quarter with a target of doubling it in two to three years." said Newton Glassman.

• Under the current SIB, the Company increased the purchase price from and initial price of $14.00 per share (in April 2016) to $16.10 per share (in July 2016), reflecting the significant increase in the trading price for Callidus shares since the initiation of the program.
• The current SIB is set to expire on August 30, 2016.

Strengthening the Leadership and Management Teams

"We are very pleased to announce that James ("Jay") Rogers is joining Callidus' leadership team as Chief Credit Officer.  Jay has extensive experience in originating, underwriting and managing loan investments, most recently for Cerberus Capital Management, L.P. and their finance company Ableco Finance L.L.C., which specializes in distressed lending," concluded Newton Glassman.

• Chief Credit Officer will be responsible for managing the aggregate risk in the loan portfolio, coordinate and manage the work-out of certain credits, and recommend appropriate strategies to the Credit Committee to enhance the operations and overall quality of the loan portfolio.
• Newton Glassman will remain Chairman of the Credit Committee.
• The Company intends to further build the senior credit team by adding experienced underwriters over the next two quarters to support and drive portfolio growth and quality.

Business Update (As at August 10, 2016)

• Gross loans receivable before derecognition stood at $1,218 million.
• The pipeline of potential new loans stands at approximately $940 million.
• Signed back term sheets and balance of funding for Project Resolve Inc. of approximately $150 million.
• Total debt (net of cash and cash equivalents) of $479 million, or 40% of gross loans receivable before derecognition.
• During second quarter 2016, two loans representing $60.4 million in commitments were fully repaid, bringing the year-to-date full repayments to $163.4 million from six loans.
• The Company expects approximately $10 million in gross loans receivable of four watch-list loans to be resolved in the coming months.
• On April 22, 2016, an issuer bid circular and related documents (the "Issuer Bid Circular") in connection with the Company's previously announced substantial issuer bid (the "Offer") was mailed to shareholders. Under the Offer, the Company offered to purchase for cancellation up to a total of 3,571,428 common shares. In June 2016, the Board authorized an increase to the purchase price under the Offer from $14.00 per share to $15.50 per share. Subsequent to the quarter, in July 2016, the Board authorized an increase to the purchase price under the Offer from $15.50 per share to $16.10 per share. Under the revised Offer, the aggregate maximum purchase price payable by Callidus is $57.5 million. During the current year-to-date period, 1.1 million shares were purchased and cancelled under the revised Offer.
• In May 2016, the Company increased the amount of the senior revolving credit facility by a further US$37.5 million to US$337.5 million in the aggregate.
• Subsequent to the quarter, in July 2016, the Company announced that it received provisional investment grade ratings for loans to be issued through a new securitization facility. This facility is intended to serve as the Corporation's primary senior growth-financing vehicle going forward. The facility, with four investment grade debt tranches ranging from AAA (sf) to BBB (sf), is expected to be initiated at $165 million, will augment Callidus' existing facilities, and will allow the Company to lever the current portfolio by an incremental $25 million. The new securitization facility will increase in size as new loans are added. The four investment grade debt tranches ranging from AAA (sf) to BBB (sf), represent approximately two-thirds of the initial expected issue size.

Financial Highlights 

• Our Second Quarter 2016 MD&A, Unaudited Financial Statements and Issuer Bid Circular are available on our website (www.calliduscapital.ca) or on SEDAR (www.sedar.com).
• Average loan portfolio outstanding was $1,147 million, a decrease of 7% ($80 million) from the prior quarter, and an increase of 24% ($219 million) from the same quarter last year.
• The Company's performance during the second quarter was influenced by two events – the introduction of yield enhancement into income and a provision relating to one loan.
• Total revenue for the quarter was $45.9 million, a decrease of 7% ($3.6 million) from the prior quarter, and an increase of 17% ($6.6 million) from the same quarter last year.
• Gross yield for the quarter was 20.0%, an increase from 19.4% in the prior quarter, and from 18.8% in the same quarter last year. As noted previously, gross yields can be "lumpy" quarter to quarter.
• Net income was $37.5 million for the quarter ($11.9 million before yield enhancements), an increase of 119% ($20.4 million) from the prior quarter and 104% ($19.1 million) from the same quarter last year. For the current quarter, the Company recognized a gain on derivative assets associated with loans (the yield enhancements) of $32.0 million as a result of the recognition of a warrant to acquire a portion of the equity in one of our borrowers (referred to as a yield enhancement). Earnings for the quarter were also impacted by an incremental pre-tax provision of $12.0 million related to the expected loss related to Gray Aqua Group Ltd., discussed in more detail below.
• Earnings per share (diluted) were a record $0.73 per share for the quarter ($0.23 per share before yield enhancements), an increase of 115% ($0.39 per share) from the prior quarter and 103% ($0.37 per share) from the same quarter last year.
• ROE was 29.2% (9.5% before yield enhancements), an increase from 13.9% in the prior quarter and from 15.2% in the same quarter last year.
• Leverage ratio of 38.5% at the end of the current quarter, which was relatively consistent with the prior quarter.
• As at June 30, 2016, the estimated collateral value across aggregate net loans receivable was approximately 146% with a range between 100% and 480% on an individual loan basis. Furthermore, the aggregate watch-list loans had an estimated collateral value coverage of 106% and non-watchlist loans had an estimated collateral value coverage of 162%. It should be noted that there is no cross-collateralization of the asset coverage as between borrowers.
• Provision for loan losses for the second quarter was $14.4 million. Included in this amount is an unusual incremental provision of $12.0 million (pre-tax) related to Gray Aqua Group Ltd. As at March 31, 2016, the Company had taken provisions totaling $25.4 million (pre-tax) relating to the loan to this Canadian salmon farming operations based largely on estimates of the live salmon inventory prepared by independent third party evaluators. The inventory estimates were updated in the second quarter, and indicate there are fewer fish than originally expected and that those measured are smaller in size than previously estimated. Based on new cash flow forecasts derived from the revised inventory estimates, the Company deemed an incremental provision was necessary. Callidus will continue to have the inventory independently monitored periodically until the final harvest in March 2017.
• Craig Boyer, a Vice President of the Company, has elected to retire by December 31, 2016. We wish Craig well in his retirement. In the interim, he will be facilitating an orderly transition of his files and responsibilities.

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 borrower's assets, its enterprise value and borrowing needs. Callidus employs a proprietary system of monitoring collateral and exercising control over the cash inflows and outflows of each borrower, enabling Callidus to very effectively manage risk of loss. Further information is available on our website, www.calliduscapital.ca.

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 Q2 2016 results on Friday, August 12, 2016 at 10:00 a.m. Eastern Time.  The dial in number for the call is (647) 427-7450 or (888) 231-8191 (reference number: 93962347). A taped replay of the call will be available until August 19, 2016 at (416) 849-0833 or (855) 859-2056 (reference number: 93962347).

SOURCE Callidus Capital Corporation