All amounts in Canadian dollars unless otherwise indicated.
Highlights
- The pipeline of potential borrowers at December 31, 2018 was $545
million, and currently stands at approximately $550 million with one signed back term sheet
totaling approximately $27million.
- As at December 31, 2018, gross
loans receivable before derecognition was $1,225 million, an increase of $178 million or 17% from December 31, 2017. The increase was primarily due
to the origination of two new loans and the funding of existing
loans in the current year partially offset by the write-off of five
loans in the current year.
- Total non-interest revenues for the year was $337.2 million, an increase of $214.8 million or 176% from last year, primarily
due to the consolidation and recognition, for accounting purposes,
of non-interest revenues of the injection molding, forest products,
and paving businesses since June
2017, November 2017 and
January 2018 respectively.
- Subsequent to the year end, the Company successfully closed the
previously announced sale of the commodity division of C&C
Resources Inc. for all-cash consideration of approximately
$100 million. A significant portion
of the proceeds from the sale were used to pay down the senior debt
and collateralized loan obligation.
- Provision for loan losses for the year of $114.3 million (2017 - $217.4 million) was recorded in the statements of
income. Of this total provision, approximately $67 million related to one specific loan
concentrated in the energy sector.
- During the year, there were indications of impairment at four
of the Company's businesses that reflected declines in forecasted
performance due to market conditions and lower than expected
financial performance of certain businesses. As a result, an amount
of $56.3 million was recorded in the
statements of comprehensive income as an impairment of goodwill for
the year (2017 - $9.5 million).
- During the year, the Company recognized a recovery in the
statements of comprehensive income of $63.8
million under the Catalyst guarantee due to the recognition
of specific loan loss provisions and other asset impairments in the
year and confirmation of coverage of the Catalyst guarantee related
to a specific loan.
- Net loss for 2018 of $183.6
million compared to a loss of $218.5
million in 2017.
- Loss per share for 2018 of $3.33
compared to a loss of $4.32 in
2017.
- Net loss for the fourth quarter of 2018 of $115.4 million compared to a loss of $171.6 million in the same period in 2017.
- Loss per share for the fourth quarter of 2018 of $2.02 compared to a loss of $3.37 in the same period in 2017.
- In December 2018, the Company
implemented a retention plan for virtually all employees in an
effort to maintain workplace continuity until the end of fiscal
2019 and to better align compensation incentives with Company
performance indicators.
- Callidus announced that as there are currently no investment
analysts covering the Company, it has decided to suspend quarterly
analyst conference calls.
TORONTO, April 1, 2019 /CNW/ - Callidus Capital
Corporation (TSX:CBL) (the "Company" or "Callidus") today announced
its financial and operating results for the full year (audited) and
fourth quarter (unaudited) ended December
31, 2018.
|
For Three Months
Ended
|
Year
Ended
|
($ 000s unless
otherwise indicated)
|
Dec 31,
2018
|
Sept 30,
2018
|
Dec 31,
2017
|
Dec 31,
2018
|
Dec 31,
2017
|
Net loans receivable
(before derecognition), end of period
|
354,586
|
366,581
|
247,306
|
354,586
|
247,306
|
Gross loans
receivable (before derecognition), end of period
(1)
|
1,224,834
|
1,163,092
|
1,046,983
|
1,224,834
|
1,046,983
|
Average loan
portfolio outstanding (1)
|
1,194,098
|
1,148,956
|
1,055,468
|
1,135,804
|
1,081,937
|
Gross yield (%)
(1)
|
7.4%
|
8.7%
|
10.8%
|
7.2%
|
13.9%
|
Total
revenues(2)
|
75,958
|
97,540
|
52,808
|
331,887
|
165,810
|
Net interest margin
(%) (1)
|
-0.7%
|
-0.2%
|
1.9%
|
-0.5%
|
4.0%
|
Net (loss)
income
|
(115,356)
|
(20,388)
|
(171,599)
|
(183,592)
|
(218,486)
|
Earnings per share
(diluted)
|
($2.02)
|
($0.36)
|
($3.37)
|
($3.33)
|
($4.32)
|
Recognized yield
enhancements(3)
|
-
|
-
|
900
|
-
|
6,700
|
Leverage ratio
(%)(1)
|
39.0%
|
38.8%
|
37.3%
|
39.0%
|
37.3%
|
|
2018 amounts are
under IFRS 9 and 2017 amounts are under IAS 39.
|
(1)
|
Refer to
"Forward-Looking and Non-IFRS Measures" in this press
release. These financial measures are not recognized measures
under IFRS and do not have a standardized meaning prescribed by
IFRS. Therefore, they may not be comparable to similar
measures used by other issuers.
|
(2)
|
Certain comparative
figures have been reclassified to conform with current period
presentation.
|
(3)
|
Recognized yield
enhancements are recorded in the statements of income in total
revenues (2018 – nil; 2017 - $9.8 million) and in loss on
derivative assets associated with loans (2018 – nil; 2017 - loss of
$3.1 million).
|
(4)
|
Income statement data
is after derecognition, unless otherwise indicated.
|
Subsequent Event
The Company has incurred significant operating losses and negative
cash flows from operations in the current and preceding year,
and requires ongoing funding and support from certain Catalyst
Limited Partner Funds ("Catalyst Funds") managed by The
Catalyst Capital Group Inc. ("CCGI") reflecting the Company's
economic dependence on those Catalyst Funds. See additional
discussion in note 2(d) and 20(c) of the Financial Statements.
On March 28, 2019, the Company
entered into an agreement with certain Catalyst Funds and CCGI,
related to the extension and modification of the following
credit facilities, which have been made available to the Company by
the Catalyst Funds:
- the US$250 million bridge
facility (the "bridge loan") as discussed in note 13 of the
Financial Statements;
- the $15.5 million facility to
refinance a loan obtained from a Canadian financial institution
(the "refinance facility") as discussed in note 15(d) of the
Financial Statements; and
- the credit facility in respect of certain loans guaranteed by
certain Catalyst Funds (the "guaranty loan") as discussed in note
15(c) and related to the Catalyst guarantees also discussed in note
15(c) of the Financial Statements.
Among other things, it was agreed that, with effect as of
January 1, 2019, the bridge loan will be payable on demand,
however no demand for repayment in cash can be made prior to June
30, 2020 to the extent the Company's Board of Directors
determines that repayment of any such loan in cash would not be
prudent having regard to the Company's cash position. The
agreement also provides that, until June 30, 2020, Callidus
will have the right at its discretion to accrue all interest
and fees payable under the bridge loan, which it has done. The
Catalyst Funds' waived compliance with the bridge loan debt
covenant as of December 31, 2018 and waived compliance with future
financial debt covenants.
The refinance facility was amended on a similar basis to the
bridge loan. With regards to the guaranty loan, the terms of
the loan were modified such that the repayment date coincides with
the June 30, 2020 date on
which demand in cash may be made in respect of the bridge
loan.
Certain Catalyst Funds also agreed to advance to 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.
Additionally, prior to June 30,
2020, if the Company determines that its shareholders'
equity is less than $20 million, or would be less than
$20 million if a demand on the bridge
loan were made and satisfied in cash, the Company may repay a
portion of the principal amount of the bridge loan and/or accrued
fees and interest by issuing to the Catalyst Funds 9.5%
cumulative, redeemable, non-voting preference shares in the capital
of the Company in such amount as is required to ensure that
the Company's shareholders' equity would be $20 million after giving effect to such
repayment. As well, the Catalyst Funds have the option to require
that such repayment be effected by the issuance of common
shares rather than preference shares, subject to receipt of
all necessary regulatory approvals, unless Callidus' Board of
Directors determines that it would not be in the
best interests of Callidus to issue such common shares.
Callidus has a similar right under the refinance
facility provided that the right to issue preference or common
shares in repayment of the refinance facility will only apply
after the bridge loan has been settled. In accordance with this
agreement, subsequent to the year-end, the Company converted
$25.5 million of the bridge loan into
$25.5 million of 9.5% cumulative,
redeemable, non-voting preference shares to eliminate the
shareholders' equity deficit as at December
31, 2018.
CCGI agreed to backstop certain Catalyst Funds with up to
$25 million to enable them to comply
with their obligations to the Company, if needed. CCGI's
obligation will terminate once those Catalyst Funds
have certified to the Company that they have the required
liquidity to satisfy their obligations to the Company.
The agreement also provides that Catalyst Fund Limited
Partnership V ("Catalyst Fund V") will be responsible for funding
all additional advances to borrowers under the four loans in
which Catalyst Fund V currently has a participation interest (see
note 15(b)) of the Financial Statements, following which the
respective participation interests in such loans will be
adjusted accordingly.
Additionally, if the Company requires funding for a new loan or
wishes to reduce its interest in a participation loan, the
Company can obtain such funding from Catalyst Fund V, subject to
Catalyst Fund V being satisfied in its reasonable discretion
with the terms of the loan and the creditworthiness of the
borrower. Catalyst Fund V agreed to provide such funding in an
amount up to US$300 million, less the
amount that Catalyst Fund V has already advanced or committed
in respect of participation interest loans. Catalyst Fund V has
agreed to purchase the Company's interests in two
participation loans as and when requested by the Company, which as
of the date of the agreement amounted to $12.0 million.
In consideration of the arrangements agreed above, the Catalyst
Funds are able, at their discretion prior to June 30, 2020, to
charge a fee equal to 1% of the aggregate amount owing under the
bridge loan. If the Company is notified that such fee is being
charged, the amount of the fee will be added to the bridge loan
balance.
The Company's future plans include seeking to raise alternative
means of financing and capital to fund new lending, and the
regeneration of profitable operations from its lending business and
operating subsidiaries. Management is also assessing potential
asset divestments. Furthermore, a potential privatization
transaction is still being pursued. However, there is no
guarantee that the Company will be successful with these
activities.
Business Update (As at April 1,
2019)
Loan Portfolio – The Company's pipeline at December 31, 2018 was $545
million, and currently stands at approximately $550million with one signed back term sheet
totaling approximately $27
million.
As previously disclosed, Callidus undertakes extensive due
diligence before closing on a loan transaction and there can be no
assurance that the results of the due diligence will be
satisfactory to Callidus.
As at December 31, 2018, net loans
receivable of $224.0 million in 2018
remained relatively flat from $223.4
million in 2017 as loan originations and increased
funding were offset by higher provisions for loan losses and the
consolidation of Midwest Asphalt Corporation in the first
quarter of 2018 as this loan was removed from loans receivable
and the company was consolidated in the financial
statements.
Acquired Subsidiary Companies – A total of six loans have
been removed from loans receivable and consolidated in the
financial statements in order to protect collateral in each of
those loans.
Total non-interest revenues for these acquired subsidiary
companies: (i) for the fourth quarter of 2018 were $78.1 million, an increase of $30.3 million or 64% from the same quarter last
year and (ii) for the full year 2018 were $337.2 million, an increase of $214.8 million or 176% from 2017, primarily due
to the consolidation and recognition, for accounting purposes, of
non-interest revenues of the injection molding, forest products,
and paving businesses since June
2017, November 2017 and
January 2018 respectively.
Total gross margin for these acquired subsidiary companies for
the fourth quarter of 2018 was 2.3%, compared to 4.0% in the same
quarter last year. Gross margin for the full year 2018 was 9.1%, a
decrease from 10.0% in 2017. The decreases in gross margin
were due primarily to: (i) the aluminum castings business
experiencing more negative gross margins in the quarter and
year-to-date periods due to a reduction in volume from a major
customer and (ii) a decrease in gross margin for the gaming
business due to cost of sales in the third quarter of 2017 being
impacted by a one-time inventory costing adjustment.
Callidus continues to work with these subsidiaries to implement
strategic decisions and execute new business plans as part of their
respective turnarounds.
Provision for Loan Losses – Provision for loan
losses of $53.3 million was recorded
in the statements of comprehensive income for the fourth
quarter of 2018 ($153.2 million
in Q4-2017). Provision for loan losses for the year of $114.3 million (2017 - $217.4 million) was recorded in the statements of
income. Of this total provision, approximately $67 million related to one specific loan
concentrated in the energy sector.
During the year, there were indications of impairment at four of
the Company's businesses that reflected declines in forecasted
performance due to market conditions and lower than expected
financial performance of certain businesses. As a result, an
amount of $56.3 million was recorded
in the statements of comprehensive income as an impairment of
goodwill for the year (2017 - $9.5
million).
During 2018, the Company recognized a recovery in the statements
of comprehensive income of $63.8 million under the Catalyst guarantee
due to the recognition of specific loan loss provisions and other
asset impairments in the year and confirmation of coverage of
the Catalyst guarantee related to a specific loan. During the
fourth quarter of 2018, the Company recognized a recovery of
$13.4 million under the Catalyst
guarantee due to the recognition of specific loan loss
provisions.
Normal Course Issuer Bid – In April 2018, the Toronto Stock Exchange accepted
Callidus' notice of intention to undertake a normal course issuer
bid ("NCIB"). Under the terms of the NCIB, Callidus may acquire up
to 2,648,529 of its common shares, representing 5% of the
52,970,597 common shares comprising Callidus' total issued and
outstanding common shares as of April 2, 2018, and will be
purchased only when and if the Company considers it advisable. No
purchases have been made to date under the current Normal Course
Issuer Bid. As the Company continues to pursue a potential
privatization transaction, it is maintaining a trading blackout and
purchases under the Normal Course Issuer Bid may only be effected
when that blackout ceases.
Liquidity and Changes to Credit Facility – The Company's
primary sources of short-term liquidity are cash and cash
equivalents. Assuming a participation rate for Catalyst Fund
Limited Partnership V of approximately 75%, total liquidity as at
December 31, 2018 would be able to
support in excess of approximately $200
million of new loans. In addition, as business acquisitions
are rehabilitated, the Company will pursue opportunities to
monetize these investments where and when we believe capital may be
deployed in opportunities that generate superior returns. Timing of
these divestitures is uncertain and will be assessed on a case by
case basis, taking into account performance of the investment and
the macro-economic conditions impacting the sector of the
investment.
The Corporation expects to secure future growth capital through
asset sales and attracting incremental capital, although there is
no certainty it will succeed in this regard.
Subsequent to the year-end, the Company entered into an
agreement with certain Catalyst Funds and CCGI to address the
Company's funding and liquidity requirements. As part of the
agreement, all future financial covenant waivers have been waived;
see Subsequent Event earlier in this news release.
Privatization Process – The Company continues to
pursue a privatization. While discussions continue with
Braslyn Ltd., there are no material facts or changes to report and
there can be no assurance that a transaction will be completed.
Strategy for Restoring and Building Shareholder Value -
Callidus is committed to restoring and building shareholder value
and intends to do so, by: (i) prudently growing the loan portfolio;
(ii) actively managing the loan portfolio to minimize realized
losses with a goal to recover some of the loan loss provisions
recorded to date; (iii) maximizing the cash-flow and value of
businesses acquired; (iv) prudently increasing leverage, including
seeking external sources of financing at the subsidiary level; (v)
enhancing the management team as appropriate; and (vi) considering
other transactions that could support and/or benefit the
Corporation's plan.
Management Continuity - With the resignation of
Patrick Dalton and while
Newton Glassman, Callidus' Executive
Chairman and Chief Executive Officer, continues to be on a medical
leave of absence, the Callidus Board of Directors has assigned CEO
responsibilities to the existing Callidus management team. To
that end, in December 2018, the
Company implemented a retention plan for virtually all employees in
order to maintain workplace continuity until the end of fiscal 2019
and to better align compensation incentives with Company
performance indicators.
IFRS and Non-IFRS Measures - Management uses both IFRS
and non-IFRS measures to monitor and assess the operating
performance of the Company's operations. Throughout this
press release, Management uses the following terms and ratios which
do not have a standardized meaning under IFRS and are unlikely to
be comparable to similar measures presented by other
organizations:
Average loan portfolio outstanding is calculated
before derecognition for the annual periods using daily loan
balances outstanding. The average loan portfolio outstanding
grosses up the loans receivable for (i) businesses acquired, (ii)
the allowance for loan losses, and (iii) discounted
facilities. This information is presented to enable readers
to see, at a glance, trends in the size of the loan portfolio.
Gross yield is defined as total interest, fees and other
revenues before derecognition divided by the average net loan
portfolio outstanding after adjusting for loans classified as
businesses acquired. While gross yield is sensitive to
non-recurring fees and yield enhancements earned (for example, as a
result of early repayment), the Company has included this
information as it believes the information to be instructive given
the frequency of receipt of non-recurring fees and enables readers
to see, at a glance, trends in the yield of the loan portfolio
Gross loans receivable is defined as the sum of (i)
the aggregate amount of loans receivable on the relevant date, (ii)
the loan loss allowance on such date, (iii) the book value of
businesses acquired as they appear on the balance sheet, and (iv)
discounts on loan acquisitions. The following is a
reconciliation, before and after derecognition, of gross loans
receivable to net loans receivable in the statements of financial
position and a summary of gross loans receivable as at December 31, 2018 and December 31, 2017.
|
After
Derecognition
|
Before
Derecognition
|
After
Derecognition
|
Before
Derecognition
|
($ 000s)
|
December
31, 2018
|
December
31, 2018
|
December 31,
2017
|
December 31,
2017
|
Loan
facilities
|
$
1,148,260
|
$1,301,342
|
$
1,096,888
|
$
1,146,510
|
Gross loans
receivable
|
1,092,578
|
1,224,834
|
1,022,193
|
1,046,983
|
Less: Discounted
facilities
|
-
|
-
|
(7,575)
|
(7,575)
|
Less: Allowance for
loan losses
|
(320,158)
|
(321,855)
|
(358,217)
|
(359,079)
|
Less: Cumulative
change in fair value of financial
instruments(1)
|
(45,331)
|
(45,331)
|
-
|
-
|
Less: Impairment on
goodwill and businesses acquired(2)
|
(150,209)
|
(150,209)
|
(57,421)
|
(57,421)
|
Less: Businesses
acquired(2)
|
(352,853)
|
(352,853)
|
(375,602)
|
(375,602)
|
Net loans
receivable
|
$
224,027
|
$
354,586
|
$
223,378
|
$
247,306
|
|
2018 amounts are
under IFRS 9 and 2017 amounts are under IAS 39.
|
(1)
|
Certain loans
receivable have been reclassified from loans receivables at
amortised cost under IAS 39 to loans receivables measured at
FVTPL under IFRS 9.
|
(2)
|
Businesses acquired
are presented in the statements of financial position by their
respective assets and liabilities.
|
Return on equity ("ROE") is defined as net income
after derecognition divided by quarterly average shareholders'
equity. Return on equity is a profitability measure that
presents the annualized net income as a percentage of the capital
deployed to earn the income.
Yield enhancement is defined as a component of a
lending arrangement that Callidus negotiates in addition to the
original loan agreement including additional fees, profit
participation arrangements and equity and equity like instruments.
Should a value be determined for the enhancement and depending on
its contractual nature, the related amount may be recognized in the
statements of comprehensive income as a part of interest income,
fee income or as a financial instrument at fair value through
profit or loss ("recognized yield enhancements") or may be
unrecognized, which includes yield enhancements relating to
controlling interests, depending on the appropriate accounting
treatment under IFRS. The Company has discontinued disclosure of
unrecognized yield enhancements in light of comments expressed by
the Ontario Securities Commission.
Total gross margin is defined as total non-interest
revenues less total cost of sales, divided by total non-interest
revenues, expressed as a percentage.
Leverage ratio is defined as total debt (net of
unrestricted cash and cash equivalents) divided by gross loans
receivable before derecognition. Total debt consists of the
senior debt, revolving credit facilities, collateralized loan
obligation and subordinated bridge facility.
The non-IFRS measures should not be considered as the sole
measure of the Company's performance and should not be considered
in isolation from, or as a substitute for, analysis of the
Company's financial statements.
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.
Further information is available on our
website, www.calliduscapital.ca.
SOURCE Callidus Capital Corporation