• Fourth and final step in efforts to boost stock is privatize
  • Efforts thus far have failed to provide a floor, analyst says

Newton Glassman’s Catalyst Capital Group Inc. may soon need to decide on whether to take its Callidus Capital Corp. unit private as efforts to support the share price continue to fall short of its targets. 

Glassman, chief executive officer of Callidus and its private-equity parent Catalyst, said last year he would consider taking Callidus private if the stock continued to underperform. Measures to boost the stock, including a dividend increase and share buybacks, lifted the stock this year though it’s still below what the company considers fair value.

"If these most recent capital measures also do not have the intended impact,
the company should proceed with a privatization," said Paul Holden, a Toronto-based analyst with the Canadian Imperial Bank of Commerce, in a note to clients Tuesday.

Glassman, who declined to comment, has said taking the company private would be the final step in Callidus’ four-step process to improve its share price, after dividends and share buybacks.

The moves have boosted Callidus’ stock price 60 percent this year to C$14. That’s down from a 2014 high of C$24 and leaves the stock unchanged since it went public two years ago.  

Distress Lender

Callidus provides loans to companies that can’t tap traditional lenders because of low credit ratings, including those in distress. Toronto-based Catalyst holds about 61 percent of Callidus’ outstanding common shares.

The stock gains have been supported by a C$50 million buyback announced on March 30 at C$14 a share. The stock has rallied 37 percent since Callidus announced the bid, which expires on May 27.

Callidus also hiked its monthly dividend by 43 percent Tuesday to C$1 a share per year, and announced another buyback of as much as 5 percent of its outstanding shares, with a maximum price of C$16.50.

The shares continue to trade below what Callidus thinks they are worth. The company hired National Bank Financial to ascribe a fair value of its shares in April, which the bank pegged at between C$18 to C$22 a piece.

Go Private

Jaeme Gloyn, an analyst at National Bank Financial, urged investors in a note this week not to tender their shares in the issuer bid because he believed if the shares don’t rally, a go-private transaction at about C$18 a share was a "likely probability."

"In the meantime, the increased dividend offers an attractive yield of 7.4 percent," he said in the note.

After going public in April 2014, Callidus became the target of short sellers early last year following reports by Toronto-based hedge fund West Face Capital Inc. and Veritas Investment Research Corp. that raised concerns about the company’s model.

Short interest in Callidus has fallen to about 6 percent of outstanding shares, from 19 percent in January, according to Markit data. Short sellers profit from price declines by selling borrowed securities and repurchasing them at cheaper levels.

Loan Write-Down

The Veritas report last year cast doubt on the company’s ability to grow at its current pace while maintaining loan quality, among other issues. Glassman responded by launching lawsuits against Veritas and West Face.

Since the reports, Callidus posted a C$22.7 million write-down in the fourth quarter related to what it called an "isolated atypical event" tied to a salmon farming business, Gray Aqua Group Ltd.

The concern among some analysts is that there might be more troubled loans in its portfolio that lead to similar write-downs.

"What Callidus deemed as an unusual could be normal in our eyes, which carries specific risk," said Scott Chan, Canaccord Genuity analyst, in a note to clients in March.

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