Callidus Capital Corp. expects further losses on businesses it owns or loaned money to, a downbeat outlook for the lending company controlled by Newton Glassman as it continues to deal with an offer to take the company private.
Callidus president David Reese told shareholders at Tuesday’s annual meeting in Toronto the company is struggling to rebuild five businesses it took over after they failed to pay back loans, and “may have to sell at a loss.” Mr. Reese also said Callidus has nine loans outstanding and “we anticipate we will have some loan loss provisions, as we still have some problems in our portfolio.”
Callidus typically lends to industrial businesses that cannot get credit from banks and other traditional sources of credit because of financial or business difficulties. It sometimes ends up owning companies that fail to repay those loans, and will attempt to restructure and sell them to recoup some money. The company has not made a new loan in the past 12 months and Mr. Reese said strong competition from rivals lenders and Callidus’s poor financial performance are impediments to winning new business.
Publicly traded Callidus, which is 72 per cent owned by private equity fund Catalyst Capital Group Inc., lost $24.7-million in the first quarter, following on a loss of $182.5-million in 2018 and a $218.5-million loss in 2017.
The company has lost money for 10 consecutive quarters and shareholders’ equity – an important measure for a financial-services firm – has largely evaporated in that time, declining from $437-million at the end of 2016 to $36-million as of March 31.
For the second consecutive year, Mr. Glassman, the chairman and chief executive of Callidus, did not attend the company’s annual meeting for what Mr. Reese said were “personal health reasons.” When Callidus shareholders asked when Mr. Glassman would return to full-time work, Mr. Reese said there is “no firm date” but said he does see Mr. Glassman “on a fairly regular basis” at the company’s offices, which it shares with Catalyst, and that Mr. Glassman remains active in the company as chair of the Callidus credit committee.
Catalyst took its distressed lending unit public at $14 a share in 2014 and its stock price hit $24 later that year. In 2017, with the stock trading around the initial public offering price, Mr. Glassman repeatedly held out the prospect of taking the company private at $18-to-$22 a share, based on a valuation from National Bank Financial. Callidus stock closed Tuesday at 51 cents, giving the company a $30-million market capitalization.
Last December, Bahamas-based Braslyn Ltd. offered to buy Callidus’s publicly held shares for $2 each, and Callidus struck a committee of independent directors to deal with the unsolicited bid. On Tuesday, Mr. Reese told shareholders that negotiations with Braslyn are continuing and declined to provide a timeline on the talks. Braslyn is owned by British billionaire Joe Lewis and holds a 14.5-per-cent stake in Callidus.
At Tuesday’s meeting, Callidus shareholders approved the sale of slot-machine maker Bluberi Gaming Canada Inc. to Catalyst. In return, Catalyst forgave $92.5-million of debt the fund had extended to Callidus. Accounting firm BDO Canada LLP provided a favourable fairness opinion on the transaction.
Two years ago, Callidus highlighted the profit it stood to make on the sale of Blueberi, based in part on the potential sale of up to 7,000 of the company’s slot machines to Gateway Casinos & Entertainment Ltd., a company also controlled by Catalyst. Gateway filed for an IPO in November, 2018, with Morgan Stanley leading the transaction.
Catalyst’s provisions for loan losses totalled $320-million at the end of 2018, including $199.5-million for impaired loans to companies in the energy sector, mainly due to problems with an unnamed lender with operations in South America. At the time, analysts said the troubled borrower is Oklahoma-based Horizontal Well Drillers, which held contracts to do work in Venezuela.
At Tuesday’s meeting, shareholders asked Mr. Reese for an update on Callidus’s South American exposure, and were told that while there were no new details on the loans, drilling equipment earmarked for the contract never left the United States.
Callidus paid Mr. Reese $2.9-million in 2018 and $4.7-million in 2017.
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Andrew Willis