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A sign shows the entrance to the offices of Callidus Capital in Toronto, July 6, 2017.


Callidus Capital Corp. shares skidded to a low after the lending firm reported another deep quarterly loss and said its net worth had fallen below zero, blaming poor performance at companies it has acquired.

Toronto-based Callidus, majority owned by financier Newton Glassman’s Catalyst Capital Group Inc., fell 21 per cent to $1.09 on the Toronto Stock Exchange. That represents a drop of 83 per cent in the past year.

For Mr. Glassman, who built a name on Bay Street with an aggressive, and often litigious, approach to restructuring situations, a string of losses has damaged a company that once seemed a cornerstone investment for Catalyst, one of Bay Street’s most prominent private-equity concerns. Callidus has lost more than $400-million over the past two years.

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Callidus said four of its businesses are showing signs of impairment, forcing it to write off $56.3-million in goodwill, which hurt the fourth-quarter results. The company suffered $53.3-million in loan losses in the last three months of 2018.

Its acquired companies, including Otto Industries North America Inc., Altair Water and Drilling Services Inc., Midwest Asphalt Corporation and Bluberi Gaming Technologies Inc., are all struggling with “declines in forecasted performance due to market conditions and lower than expected financial performance,” Callidus said. In the quarter, Callidus lost $115.4-million, or $2.02 a share, compared with a year-earlier loss of $171.6-million, or $3.37 a share. Revenue rose to $76-million from $53-million in the fourth quarter of 2017.

Shareholder equity in Callidus, an important measure of the financial health of a financial-services company that measures assets against liabilities, tumbled to minus $5.4-million at the end of December, from $177-million a year earlier.

Mr. Glassman has been on medical leave from his position as Callidus chief executive officer since last summer. Other executives were not available for comment on Callidus’s prospects on Tuesday, and the company said it no longer holds conference calls to discuss its results because no research analysts cover it any more.

Mr. Glassman gave the investment community a glimpse into his empire’s inner workings when he took Callidus public in a $290-million initial public offering in 2014. Priced at $14 a share, the decision to list on the TSX was aimed at securing new capital and a higher profile for a division that extends loans to companies that are in financial distress or restructuring.

The IPO was designed to allow Catalyst to maintain a controlling interest, while providing Callidus with the money to expand its loan products, acquire new portfolios and even buy loan assets from Catalyst itself. Mr. Glassman ran both firms.

Callidus shares rose as high as $23.25 in August of that year, shortly after the IPO, giving it a market capitalization of nearly $1.2-billion. In a letter to shareholders in early 2015, Mr. Glassman sounded an optimistic note, predicting rapid growth for the newly public company. “We have an outstanding and agile team with ample access to capital through our financing partners and our majority owner, The Catalyst Capital Group Inc.,” he wrote.

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But soon after, things began to go sideways, and the 2018 results show the trend continuing. Provisions for bad loans totalled $114.3-million on the year, though that was down from $217.4-million the year before. It said $67-million of the most recent provision was from one loan in the energy sector.

It is a rough and tumble business, lending to companies whose unstable finances prevent them from securing debt financing from banks and other financial institutions. Callidus tends to structure its loans using a company’s cash receivables and assets as collateral. And some borrowers found it difficult to repay their high-interest debt as Callidus insisted on keeping a firm grip on the cash flow, especially if the business was suffering.

In a number of cases, when the borrowers’ businesses then failed, Callidus took control through insolvency processes and pushed out management. But acquiring direct control of the businesses also put Callidus on the hook for turning them around. Even with its own managers in charge, the road to recovery for some of the acquired companies has been arduous.

Over the past two years, Callidus has lost $402-million, blaming several factors including problems facing both its borrowing clients and its acquired companies. For example, Oklahoma-based Horizontal Well Drillers, an energy-service company whose operations in Venezuela have been halted by political turmoil and civil unrest there, and Bluberi, a Quebec-based developer of casino games whose output has lagged early expectations.

Late Friday, Callidus announced what amounted to rescue financing for the company from funds managed by Catalyst. Callidus said “certain investment funds” run by Catalyst granted an extension to a US$250-million bridge loan and that the funds would advance an additional $35-million under the bridge loan if it is determined that the company’s solvency is in question.

Bridge loans are often short-term in nature, but this one appears to buy extra time for Callidus. In another signal that it is girding for more financial stress, Callidus said that if it determines that its shareholders’ equity would drop to less than $20-million, it can choose not to repay the bridge loan in cash. Instead, it can repay by issuing nonvoting preferred shares that pay 9.5 per cent, to restore shareholders’ equity above the $20-million level.

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Shareholders’ equity, also known as “book value,” reflects the company’s net worth, or the difference between the value of its assets and its liabilities. At the end of 2014, in its first annual report as a public company, Callidus reported a loan portfolio of more than $800-million and shareholders’ equity of $467-million. Now, that equity has melted away.

The impact extends beyond Callidus’s minority public shareholders, who have watched value of their investment tumble 90 per cent in the past five years. Importantly, Callidus’s equity and debt also make up sizable parts of the portfolio in a number of Catalyst Capital’s private funds. Those funds are sold to both wealthy individual investors and institutions such as the University of Toronto, McGill University and the Arizona State Retirement System.

As Callidus struggles, at least one of those Catalyst funds may find itself even more financially entwined with Callidus. According to the statement on Friday, Catalyst’s Fund V limited partnership “will be responsible for funding all additional advances to borrowers” for four loans in which that fund already has an interest.

Meanwhile, Mr. Glassman’s pledge to find a way for Callidus’s early shareholders to get out with a profit seems like a distant memory. In 2016, Mr. Glassman said he was looking at privatizing the company again and tapped National Bank Financial to provide a valuation of Callidus; the bank came up with a range of $18 to $22 a share.

Late that year, the company formally began a process to find a buyer or other investor, raising hopes for a premium-priced bid.

“Given the four or five areas of improvement since the time of the National Bank valuation, I personally, and I’m not speaking on behalf of anybody else at this point, I personally would have difficulty unless there’s a massive change in market, understanding or supporting anything below basically the high end of National Bank’s valuation,” he told analysts in November, 2016.

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But since then, Callidus has struggled with underperforming loans and losses. Its prospects have also been clouded by long-running legal battles, the highest-profile one being Mr. Glassman’s lawsuit against West Face Capital founder Greg Boland and several other defendants after a Wall Street Journal story in August, 2017, about whistle-blower complaints to the Ontario Securities Commission, accusing Catalyst and Callidus of fraud. The suit names former Callidus borrowers M5V Advisors Inc., Clarityspring Inc. and Journal reporters, among others.

Mr. Glassman contends that Callidus was the target in a "wolf-pack conspiracy" of short-sellers to drive down the stock price. Mr. Boland countersued, stating that he and West Face were not involved in any conspiracy, and he closed out his short position in Callidus a couple years earlier.

In the summer of 2018, Mr. Glassman stepped aside from his CEO role at Callidus, citing coming spinal operations and expectations for a lengthy recuperation. The company named U.S. alternative credit veteran Patrick Dalton as interim CEO in October, and in December, the company’s minority shareholders finally received a potential takeover bid – at a price far below Mr. Glassman’s target.

Bahamas-based Braslyn Ltd., Callidus’s second-largest shareholder, proposed to buy out the minority shares for $2 each. Braslyn, owned by the Tavistock Group, the holding company controlled by British billionaire Joe Lewis, has yet to file a formal offer. Jason Callender, an official with Tavistock who is based in Bahamas, did not respond to queries on Monday about whether Braslyn still may make an offer. In its release, Callidus said it remains in talks with Braslyn but has nothing material to report.

Things were further complicated in March, 2019, when, in a rare move for a temporary leader, Mr. Dalton resigned the position.

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