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Catalyst, the country’s second-largest private equity firm, is seeking to raise as much as $200-million to expand a business that offers loans to companies that otherwise can’t find credit. 

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Canadian private equity firm Catalyst Capital Group plans to take one of its prize holdings public in what will be one of the largest Toronto Stock Exchange initial public offerings of recent months.

Catalyst, the country's second-largest private equity firm, is seeking to raise as much as $200-million to expand a business that offers loans to companies that otherwise can't find credit.

Catalyst-owned Callidus Capital Corp. filed documents related to the offering with securities regulators late last week. Two people familiar with the transaction said the expected size of the offering will be in the $150-million to $200-million range.

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Callidus and Catalyst have hired a group of banks, led by Canaccord Genuity Corp. and including CIBC World Markets Inc. and TD Securities Inc., to run the offering.

Toronto-based Callidus is in the business of asset-based lending, advancing loans to companies that can't get what they need from banks.

Until now, Catalyst has provided funding for Callidus loans from its private equity funds. Newton Glassman, who founded Catalyst, serves as chief executive officer of Callidus.

Catalyst has become one of the best performing private equity funds in the world under Mr. Glassman and his team. Its main focus is on buying debt of companies, and using that to garner influential positions in restructurings that come with big returns. Some of its largest wins have come from investments in Stelco Inc. and the Global TV assets that were sold to Shaw Communications Inc.

Callidus is an offshoot of that same focus – lending to companies under stress. Catalyst is said to plan to remain a significant investor and is not looking to sell all of Callidus in the near term.

However, Callidus plans to grow and Catalyst is not able to put more money into the company. Catalyst's funds have a cap on how much they can invest in any one holding. Tapping public markets would enable the company to offer more loans.

"The corporation's public company status may raise the profile of Callidus as a solution for borrowers and for lenders with challenging loan portfolios in addition to increasing the corporation's access to capital," Callidus said in its filing.

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Callidus plans to pay a dividend after the offering, according to the filing. That may put the company on the radar of investors seeking regular income, helping to drive demand for the stock.

Callidus has been rapidly expanding, increasing its loans receivable by close to 60 per cent a year since 2011. Revenue roughly doubled from 2012 to 2013.

The company now has $381-million of loans outstanding and says it targets gross yields on the loans of about 20 per cent. Borrowers are in industry such as technology hardware and industrials. The loan sizes are in the range of $5-million to $50-million. As an asset-based lender, Callidus gets security in the form of first claim on a company's assets – which it can essentially repossess in the event the borrower does not pay back the loan.

According to the IPO filing, Callidus is looking at expanding the number and size of loans it offers in its current business.

"Callidus has historically served primarily Ontario and Québec based borrowers; however, more recent growth reflects lending opportunities across Canada," the company said.

Callidus is also looking at creating what it calls "Callidus Lite." That business would offer lower-interest loans for lower risk borrowers. The company said it also believes the U.S. is a potential market for expansion.

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Mr. Glassman will remain as chief executive, with the same executive team that has been running Callidus inside Catalyst. According to the filing, Mr. Glassman spends about a quarter of his working time on the Callidus business.

There is a lock-up period of six months in which Catalyst cannot sell further shares.

Catalyst also has the right to participate in further loans. Even so, Catalyst may start selling shares starting next year as Catalyst-managed funds that own stock in Callidus start to wind up.

"After the termination of their respective investment periods, each of the Catalyst Funds will undertake a process of disposing of any interest it may have in Callidus at that time," the company said.

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