March 31, 2015 / 5:19 PM / in 2 years

Callidus shares take hit as loan yields miss expectations

TORONTO, March 31 (Reuters) - Shares in Callidus Capital Corp, which lends to companies unable to obtain adequate financing from banks, fell 10 percent on Tuesday after lower than expected yields from the company's loan portfolio soured sentiment about its prospects.

Toronto-based Callidus, which is run by Newton Glassman and backed by his hedge fund Catalyst Capital Group, said late on Monday that its gross yields from loans in the fourth quarter, ended Dec. 31, dropped to 18.6 percent from 21.7 percent a year earlier.

The news sent Callidus shares tumbling more than 10 percent to C$15.26 in midday trading on the Toronto Stock Exchange.

Analysts said the lower yields reflected a tilt in the loan portfolio toward Callidus Lite loans, which earn lower yields but are of higher credit quality. While these loans reduce average yields, this is expected to be offset by a lower loan losses.

The company has been also under pressure from other forces.

Business News Network (BNN) reported on Monday that Greg Boland, one of Canada's most powerful hedge fund managers, has laid out a thesis on why investors should short Callidus stock.

Boland's firm West Face and Glassman's Catalyst are locked in a court battle after a junior analyst quit Catalyst to join West Face.

BNN, citing documents it has seen, said Boland has compiled a 59-page presentation on why the loans Callidus is extending should concern investors. BNN said West Face alleges the quality of Callidus's loan portfolio is weak and that it is not well diversified, meaning that a few bad loans could have a big impact.

Neither Boland nor a spokesman for Callidus could be reached immediately for comment on the BNN report.

National Bank analyst Shubha Khan said, however, that concerns about credit quality are overblown, especially since Catalyst indemnified Callidus to an extent by guaranteeing any principal losses associated with Callidus's loan book when it took the company public last year.

"We believe concerns about the credit quality of the loan portfolio are overstated and do not appropriately reflect the impact of the Catalyst guarantee, or the rigorous underwriting and credit monitoring processes employed by the company," Khan said in a note to clients on Tuesday. (Reporting by Euan Rocha; Editing by Peter Galloway)

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