Aimia Suspends Preferred Dividends

Aimia Inc. has announced:

that its Board of Directors has suspended payment of all dividends on both its outstanding common shares and its Series 1, Series 2 and Series 3 Cumulative Rate Reset Preferred Shares (collectively, the “Preferred Shares”) effective immediately. This includes the previously declared dividends originally scheduled to have been paid on June 30, 2017, to shareholders of record as of June 16, 2017.

Under paragraph 42 of the Canada Business Corporations Act (“CBCA”), the Company’s governing corporate statute, there are two legal tests that must be met before any dividend can be paid. The Company has concluded that it satisfies the solvency test set forth at paragraph 42(a) of the CBCA.

However, due to a number of factors, the Company believes that the capital impairment test set forth in paragraph 42(b) of the CBCA would not be satisfied on June 30, 2017. These factors include the recent significant decline in the Company’s market capitalization following the May 11, 2017, non-renewal announcement by Air Canada and the high amount of the stated capital account (currently about $1.5 billion for common shares and Preferred shares on a combined basis), primarily resulting from past common share issuances at significantly higher prices than the current market.

In the event the Company is able to pay the previously declared dividends referred to above at a future date, the record date for shareholders entitled to such payment remains June 16, 2017. Dividends on the outstanding Preferred Shares are cumulative and will continue to accrue in accordance with the rights, privileges, restrictions and conditions attaching to each series of Preferred Shares.

“The Company currently has the requisite liquidity to pay these dividends, however the statutory capital impairment test legally prohibits us from doing so. Our business continues to perform well and generate strong free cash flow. We reported $331.7 million of cash and cash equivalents, restricted cash and short-term investments and $225.5 million of long-term investments in corporate and government bonds as at March 31, 2017,” said Robert E. Brown, Executive Chairman, Aimia.

“The Company has been in active discussions with various parties with a view to securing new long-term commercial and strategic relationships post-2020. We believe we have a unique set of assets that are highly valuable and compelling,” said David Johnston, Aimia’s Group Chief Executive. “At the same time, the Company is also making progress on its plan to remove a further $70 million of costs from the Company through its business review and we will provide further updates as developments warrant.”

They also announced:

the resignation of three directors. Joanne Ferstman has resigned as a director of the Company. In addition, as part of the Board of Directors’ ongoing process of renewal, the Board of Directors has also accepted the resignations of Alan Rossy and Beth Horowitz.

Over the past few years, the Company has been on a path to simplify and focus the business, reduce operating costs and dispose of certain non-core assets. Reflecting the changing profile of the Company, the Board of Directors has been reviewing its size and composition against the Company’s current needs. The current Board is now reduced to nine members.

Ferstman joined the Board in 2005, Rossy joined the Board in 2007, and Horowitz joined the Board in 2012.

It’s pretty hard to swallow the idea that this is part of a scheduled review, considering that less than a month ago they announced:

that the nominees listed in the management information circular dated March 13, 2017, as amended, were elected as directors of Aimia. The detailed results of the vote for the election of directors held at its Annual Meeting on May 11, 2017 in Toronto are set out below.

Each of the following 12 nominees proposed by management was elected as a director of Aimia:

On top of the Annual Report comments:

This was also an important year for Board renewal as we added to the retailing, capital markets and financial reporting expertise represented.

Following an extensive search led by the Governance and Nominating Committee, we announced the appointment of Thomas (Tom) D. Gardner and William (Bill) McEwan to our Board of Directors in December 2016 and the nomination of Robert (Chris) Kreidler to our Board for election at our AGM in May 2017.

I mean, either this is a lie or the company has been grossly incompetent in scheduling its review vis a vis the Annual Meeting. I’ll need a lot of convincing before I believe there’s a third option.

All this follows hard on the heels of last Thursday’s announcement:

that Chief Financial Officer Tor Lønnum will be leaving the company in September. Family reasons spurred his decision to seek out a new role that allowed him to return to Copenhagen.

Aimia Group Chief Executive David Johnston, together with the Board of Directors, has appointed Aimia director Roman Doroniuk to act as Interim Chief Financial Officer, effective September 5, while a successor is sought. Lønnum will lead the reporting of the company’s second quarter results on August 9, and then work with Doroniuk until September for a smooth transition.

As far as the stated reason for suspending dividends is concerned, well, having $2-billion goodwill on the balance sheet vs. $115-million of shareholders’ equity doesn’t help matters much, and neither does a Retained Earnings (Deficit) balance of $2.7-billion. I’ll need a little convincing before I believe that “past common share issuances at significantly higher prices than the current market” has anything to do with. Looks more like the company has simply pissed away its capital.

Affected issues are AIM.PR.A, AIM.PR.B and AIM.PR.C.

6 Responses to “Aimia Suspends Preferred Dividends”

  1. jiHymas says:

    Assiduous Reader HS had some difficulty posting his comment and has asked me to assist, so …

    And why on May 10 did: “Aimia Inc. Announces Notice of Redemption for all of its 4.35% Senior Secured Notes Series 5 due January 22, 2018”, all $200M worth (http://bit.ly/2suJMpb)?

    I haven’t seen anything quite like this in the US preferred market over the last 10 years where a company suspends its cumulative dividends when there is no imminent danger of a liquidity crunch. Has this happened before in Canada?

  2. hrseymour says:

    And why on May 10 did: “Aimia Inc. Announces Notice of Redemption for all of its 4.35% Senior Secured Notes Series 5 due January 22, 2018”, all $200M worth?

    I haven’t seen anything quite like this in the US preferred market over the last 10 years where a company suspends its cumulative dividends when there is no imminent danger of a liquidity crunch. Has this happened before in Canada?

  3. BarleyandHops says:

    (my edit – May 10th news) a notice for the redemption prior to maturity of all of its outstanding $200,000,000 principal amount of 4.35% Senior Secured Notes Series 5 due January 22, 2018 (CUSIP No. CA00900QAD57) (the “Series 5 Notes”). The redemption date as set forth in the notice of redemption is June 9, 2017 (the “Redemption Date”).

    On 11 May, 2017, it issued a news release indicating it was not renewing its Aeroplan contract with Aimia

    that its Board of Directors has suspended payment of all dividends on both its outstanding common shares and its Series 1, Series 2 and Series 3 Cumulative Rate Reset Preferred Shares (collectively, the “Preferred Shares”) effective (my edit – June 14th)

    Timing is interesting, indeed.

    HS, I don’t think it is about liquidity, imho. Note holders now sidelined. Prefs now in limbo. Common share holders feeling the burn. Loyalty members maybe nervous. Board changes. CFO search.

    Cue the music and bright lights…

  4. jmr says:

    Question regarding the concept of cumulative preferred. Assuming that Aimia will resume dividends at some point, who’ll get them? I’m assuming that it’s the registered owner at dividend declaration time. So for the June, 2017 dividend (that was declared earlier), the recipients are already known, but for all dividends past that, it’s still unknown, since those weren’t declared yet. Is this correct?

  5. jiHymas says:

    My comment copied from another post:

    I just stumbled across Rule 4-407 from the TSX Rulebook:
    (1) Except as provided in Rule 4-407(2), in all trades of securities on the Exchange, all entitlements to receive dividends or any other distribution made or right given to holders of that security shall pass with the security and shall belong to the purchaser, unless otherwise provided by the Exchange or the parties to the trade by mutual agreement.

    (2) In all sales of bonds and debentures on the Exchange, all accrued interest shall belong to the seller unless otherwise provided by the Exchange or parties to the trade by mutual agreement.

    The declaration of the June 2017 dividends has been cancelled; accrued dividends will be paid (if ever!) to whoever owns them at the dividend make-up record date.

    I don’t think they’ll ever be paid, but obviously some people think otherwise!

  6. jmr says:

    Thank you. I hadn’t seen that.
    And I agree, it’s closer to gambling than investing at this point.

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