DBRS Limited (DBRS) placed Aimia Inc.’s (Aimia or the Company) Issuer Rating and Senior Secured Debt rating of BB (low) and Preferred Shares rating of Pfd-5 (high) Under Review with Developing Implications. The rating action follows an announcement by Air Canada, The Toronto-Dominion Bank (rated AA with a Positive trend by DBRS), the Canadian Imperial Bank of Commerce (rated AA with a Stable trend by DBRS) and Visa Canada Corporation (collectively, the Consortium) that the Consortium has made a proposal to Aimia to acquire its Aeroplan loyalty business for $250 million. The proposal includes the assumption of the Aeroplan redemption liability, which totalled $1.96 billion for the quarter ended March 31, 2018. DBRS notes that Aimia has acknowledged the proposal and that the Company has formed a special committee of independent directors, who will assess whether the proposal is in the best interests of shareholders and the Company as a whole, to make a recommendation to the board of directors.
DBRS notes that subsequent to the Consortium’s proposal, Grupo Aeroméxico has made a proposal to purchase the shares in PLM Premier, S.A.P.I. de C.V. (PLM) held by Aimia for USD 180 million.
The Under Review with Developing Implications status reflects the uncertainty over what the net proceeds will be and how those proceeds will be used, what assets will remain at Aimia and what the future strategic and financial management intentions of the Company will be should either transaction occur.
On August 10, 2017, DBRS downgraded Aimia’s Issuer Rating and Senior Secured Debt rating to BB (low) from BBB (low) and Preferred Shares rating to Pfd-5 (high) from Pfd-3 (low), as well as changed the trends on all the ratings to Negative (see the DBRS press release “DBRS Downgrades Aimia Inc. to BB (low), Trend Changed to Negative” dated August 10, 2017). The rating actions followed the Company’s announcement that it had received a notice of contract non-renewal from Air Canada after the contract’s expiration in June 2020.
On February 2, 2018, DBRS commented on the sale of Aimia’s Nectar loyalty program to J Sainsbury plc for approximately $105 million (see the DBRS press release “DBRS Comments on the Sale of Aimia’s Nectar Loyalty Program” dated February 2, 2018). Aimia used $100 million of the proceeds from the transaction to repay amounts outstanding on its credit facility.
DBRS notes that although the Consortium’s proposal is not for Aimia shares, the sale of the Aeroplan program is sufficient in size to likely trigger a change-of-control provision in Aimia’s Senior Secured Debt that requires the occurrence of both a change of control and a rating event (i.e., a rating downgrade of the Senior Secured Debt). If triggered, the provision requires that an offer be made to repurchase at a price equal to 101% of the outstanding Senior Secured Debt of the Company.
DBRS notes that as of Q1 2018, Aimia had approximately $350 million of debt, $270 million of cash, $16 million of restricted cash and $272 million invested in corporate and government bonds. The debt consists of $250 million of Senior Secured Notes due May 2019 and $100 million drawn on the credit facility, which matures in 2020. Should Aimia sell the Aeroplan business to the Consortium for $250 million and its PLM interest to Grupo Aeroméxico for USD180 million, the Company would be very small in size and consist of its interest in Cardlytics and Air Miles Middle East, along with $755 million of cash that would be sufficient to repay the outstanding debt.
DBRS will proceed with its review as more information becomes available.
Aimia’s ratings are based on the quality of the Company’s brands and its relationships with remaining key commercial partners. The ratings also consider the consumer response following the announcement of the termination of the Air Canada agreement, a heightening competitive environment and the significant degree of revenue concentration.
All figures are in Canadian dollars unless otherwise noted.
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The principal methodologies are Rating Companies in the Consumer Products Industry, DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers and DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers, which can be found on dbrs.com under Methodologies.
The rated entity or its related entities did participate in the rating process. DBRS had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.
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