PrefBlog

Aimia Inc. has announced (on 2025-2-4):

the final results of its substantial issuer bid (the “Offers”) to purchase for cancellation all of its preferred shares (the “Preferred Shares”) in consideration for 9.75% senior unsecured notes (the “2030 Notes”).

Based on the count provided by TMX Trust, the depository for the Offers, a total of 7,889,931 Preferred Shares were validly tendered. The total is comprised of:

• • Series 1: 4,528,157 shares, representing 89.1% of the issued and outstanding shares of this series.
• • Series 3: 660,174 shares, representing 40.0% of the issued and outstanding shares of this series.
• • Series 4: 2,701,600 shares, representing 99.8% of the issued and outstanding shares of this series.

Preferred Shares validly deposited by preferred shareholders as of January 30, 2025 have been taken up and paid for by the Company and Aimia issued $142,603,700 principal amount of 2030 Notes in consideration.

Based on the number of preferred shares validly tendered and 2030 Notes issued in consideration, Aimia will generate approximately $6.4 million in annual cash savings when comparing the annual preferred dividends and Part VI.1 tax to the annual cash coupon interest payments. Under IFRS, Aimia expects to record a $53.7 million gain on the transaction, based on the exchange value of the 2030 Notes and the carrying value of the Preferred Shares exchanged.

Aimia considers this transaction as accretive to holders of common shares as it (i) reduces cash outflows on an annual basis, (ii) increases the net asset value for holders of common shares by approximately $0.53 per share, inclusive of all transaction costs, based on the number of shares issued and outstanding at December 31, 2024 of 95,413,317.

The 2030 Notes will bear interest at an annual rate of 9.75% payable semi-annually in arrears on June 30 and December 31 in each year (or following Business Day) commencing on June 30, 2025. The 2030 Notes will mature on January 14, 2030. The 2030 Notes will not be listed on a securities exchange or quotation system and consequentially, there will be no market through which the 2030 Notes may be sold and depositing Preferred Shareholders may not be able to resell the 2030 Notes acquired under the Offers.

Preferred Shares not tendered through the Offers will continue to be listed on the Toronto Stock Exchange and holders may expect to receive their quarterly distributions as customary.

As specified in its issuer bid circular dated November 21, 2024 (the “Circular”), Aimia has the option to acquire the remainder of the Preferred Shares by way of a compulsory acquisition (“Compulsory Acquisition”) if the Company takes up and pays for 90% or more of the Preferred Shares within 120 days of the date of the Offers. The Compulsory Acquisition option can be exercised by the Company by sending an offeror’s notice to preferred shareholders who did not accept the Offers within 60 days after the expiry date (but in any event within 180 days after the date of the Offers).

The Substantial Issuer Bid marks the first initiative introduced as a result of Aimia’s strategic review process designed to unlock the Company’s value. The Offers provide preferred shareholders with an opportunity to realize all or a portion of their investment in the Company based on (i) the limited liquidity and perpetual nature of the Preferred Shares, (ii) the higher annual yield the 2030 Notes will provide relative to the current dividend (annualized) of each series of Preferred Shares, (iii) the fixed maturity date of the 2030 Notes, and (iv) the accelerated liquidity available to holders of 2030 Notes in certain events. The Strategic Review Committee and the Board of Directors believe that the exchange of Preferred Shares for the 2030 Notes under the Offers for the purchase price (as detailed in the Offer Documents) represents an effective recapitalization of the Company and is in the best interests of the Company and its security holders.

The prior post on this topic was Issuer Bid Extended for AIM.PR.A, AIM.PR.B & AIM.PR.C.

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

DBRS has announced that it:

has upgraded its credit rating on the Preferred Shares issued by North American Financial 15 Split Corp. (the Company) to Pfd-3 (low) from Pfd-4. The rating upgrade takes into consideration the increase in downside protection to 45.5% as of January 15, 2025, from 32.7% as of January 31, 2024, the decrease in the Preferred Shares’ distribution rate to 8.75% annually on the Preferred Share’s redemption value of $10 for the fiscal year beginning December 1, 2024, from 9.5% annually for the fiscal year beginning December 1, 2023, the dividend coverage ratio of 0.4 times (x), a projected grind of 6.1% per year over the remaining term and unhedged foreign currency exposure.

The Company invests in a portfolio (the Portfolio) consisting primarily of common shares of 15 high-quality North American financial services companies: Bank of America Corporation; Bank of Montreal; The Bank of Nova Scotia; Canadian Imperial Bank of Commerce; CI Financial Corp.; Citigroup Inc.; The Goldman Sachs Group, Inc.; Great-West Lifeco Inc.; JPMorgan Chase & Co.; Manulife Financial Corporation; National Bank of Canada; Royal Bank of Canada; Sun Life Financial Inc.; The Toronto-Dominion Bank; and Wells Fargo & Company. The Company may invest up to 15% of the net asset value (NAV) in securities of issuers other than the core 15, and no more than 10% of the NAV may be invested in any single issuer. As of May 31, 2024, 11.3% of the Portfolio was also invested in Fifth Third Bancorp, U.S. Bancorp, and Morgan Stanley, and 6.7% was held in cash. Quadravest Capital Management Inc. is acting as the manager (the Manager) for this Company.

A portion of the Company’s Portfolio is exposed to currency risk as it includes securities denominated in U.S. dollars (USD), while the NAV of the Company is expressed in Canadian dollars. The Company has not entered into currency hedging contracts for the USD portion of the Portfolio, although the Company may use derivatives for hedging purposes. As of May 31, 2024, 61.6% of the Portfolio was invested in USD-denominated assets.

The Company has an at-the-market equity program (the ATM Program) that allows the Company to issue Preferred Shares and Class A Shares to the public from time to time at the Company’s discretion, effective until October 6, 2026, unless terminated prior to such date by the Company. The maximum gross proceeds from the issuance of the shares will be $350 million. During the six-month period ended May 31, 2024, 1,829,400 Preferred Shares were sold through the ATM Program at an average selling price of $10.17 per Preferred Share, raising gross proceeds worth $18.6 million. During the same period, 991,200 Class A Shares were sold through the ATM Program at an average selling price of $5.61 per Class A Share, raising gross proceeds worth $5.6 million.

The Company’s termination date can be extended for additional terms of five years at the Company’s discretion, but shareholders will be provided with a special retraction right in connection with such extension. On March 12, 2024, the Company announced the extension of the termination date of the Company for a further five-year period from December 1, 2024 to December 1, 2029. In connection with the extension of its term, holders of the Preferred Shares were provided with a special retraction right that allowed them to tender one or both classes of shares and receive a retraction price based on the November 29, 2024, NAV per unit (Unit, consisting of one Preferred Share and one Class A Share). At maturity, the holders of the Preferred Shares will be entitled to the value of the Company, up to the face amount of the Preferred Shares, in priority to the holders of the Class A Shares. Holders of the Class A Shares will receive the remaining value of the Company.

The Preferred Shares dividend rate is set by the board of directors annually and is subject to a minimum of 7.0% annually until 2029. The Preferred Share dividend rate for the fiscal year commencing December 1, 2024 was set at 8.75%, 75 basis points below the dividend rate set for the prior year. Holders of the Class A Shares are currently receiving monthly distributions of $0.11335 per share, equivalent to 9.1% per annum on the issue price of $15. No distributions will be paid to the Class A Shares if the NAV per Unit falls below $15.

As of January 15, 2025, the asset coverage ratio was at 1.8x. The downside protection available to holders of the Preferred Shares has increased to 45.5% from 32.7% a year ago. The dividend coverage remains at 0.4x, indicating that the current dividend income earned by the Company is not enough to fully cover the Company’s expenses and targeted distributions on the Preferred Shares. Without giving consideration to capital appreciation potential or any source of income other than the dividends earned by the Portfolio, the current Preferred Share dividends together with the distributions on the Class A Shares will create a projected grind on the NAV of the Portfolio of approximately 6.1% per year for the remaining term of the Preferred Shares. To supplement the Portfolio income, the Company may engage in covered call options or cash covered put options on all or a portion of the shares held in the Portfolio.

The main constraints to the credit rating are the following:

(1) Volatility in stock prices, along with changes in the dividend policies of the underlying issuers, may result in significant reductions in the Preferred Shares’ dividend coverage or downside protection from time to time.

(2) A Preferred Shares’ dividend coverage that is less than one time.

(3) Reliance on the manager to generate a high yield, through methods such as option writing, on the investment portfolio to meet distributions and other expenses without having to liquidate portfolio securities.

(4) The monthly cash distributions to holders of the Class A Shares which create grind on the Portfolio. This risk is mitigated by a NAV test.

(5) The concentration of the Portfolio in one industry.

(6) The unhedged portion of the USD-denominated Portfolio that exposes the Portfolio to foreign currency risk.

Morningstar DBRS’ credit rating on the Preferred Shares addresses the credit risk associated with the identified financial obligations in accordance with the relevant transaction documents. The associated financial obligations are the cumulative preferential monthly cash dividends and the return of the original issue price of $10 per Preferred Share to holders of the Preferred Shares on the termination date.

Morningstar DBRS’ credit rating does not address nonpayment risk associated with contractual payment obligations contemplated in the applicable transaction document(s) that are not financial obligations.

The affected issue is FFN.PR.A.