Debt management firm Callidus Capital Management is starting a middle-market loan origination business in an attempt to control its own destiny on the origination and allocations of assets. "We have to be able to own sources of origination and be a partner for other underwriters, so they will include us in their clubs," said Richard Ivers, ceo of Callidus. "We have to be an equal partner so we can stand up and take risk, which we could not do with just a group of funds rather than underwriting capital."
The plan to originate and syndicate loans was devised last summer when the big banks were retreating and there was plenty of demand, said Ivers, who prior to founding Callidus was a managing director in the leveraged finance group of Credit Suisse First Boston and a founder and co-head of the bank loan group at Salomon Brothers. Also, the middle-market has more conservative lending terms and better pricing compared to the traditional lending space, he added.
Funding for the new venture will come from several different sources. Allied Capital, which bought Callidus last November is providing some of the cash and will backstop capital needs. A $400 million collateralized loan obligation is being raised that will fund hold positions from originations, while Callidus is in discussions with lenders about a permanent warehouse facility. J.P. Morgan is leading the CLO which will permit Callidus to hold revolvers and will also contain large-cap and middle-market loans. Total assets under management will grow to $1.1 billion.
Deal size for the origination business will be in the $30-150 million range, with underwriting appetite being as much as $50-60 million. "We will then sell down to $10-15 million," Ivers explained. Callidus expects to buy up to $600 million of loans this year and 10-20% of this will be from the origination business.
Jim Fisher, previously the head of the middle-market structured finance division at J.P. Morgan, has joined as a partner to head the underwriting side. Fisher was a senior v.p. responsible for middle-market financial sponsor coverage, leasing and asset-based lending. He has strong relationships with sponsors, Ivers said. Three other staffers, including a loan syndicator and a portfolio manager from a bank, are set to join, but Ivers declined to name them. Fisher, who started a week ago, said, "Callidus has put together a very compelling business model in this space."
Explaining how deals will be sourced, Ivers said he and the other founding partners at Callidus have strong links with middle-market pioneers Antares Capital Corp., Denali Capital and principals at sponsor funds. In addition, Callidus can call on the Allied origination force for mezzanine and private equity. Callidus is also looking at relatively small situations in concert with Allied, so that the firm can be a one-stop shop for mid-market corporates.