PrefBlog

Standard & Poor’s has announced:

• •We are lowering our long-term corporate credit rating on Montreal-based Aimia Inc. to ‘BB-‘ from ‘BB+’ based on our view that the company’s business and cash flow would be pressured following Air Canada’s notice that it will not renew its contract with Aimia in 2020.
• •At the same time, we are lowering our issue-level ratings on the company’s senior secured notes to ‘BB’ from ‘BBB-‘.
• •We are also lowering our global scale rating to ‘B-‘ from ‘B+’ and our Canada scale rating to ‘P-4(Low)’ from ‘P-4(High)’ on Aimia’s preferred shares.
• •At the same time, we are removing all our ratings on Aimia from CreditWatch, where they were placed with negative implications May 12, 2017.
• •The negative outlook reflects our view of the uncertainty associated with the timing and magnitude of reward redemption and potential for lower gross billings; limited visibility of member behavior toward the Aeroplan program; and execution risks associated with the company’s ability to sign-up new partners, sell noncore assets, and meaningfully improve its cost structure.

…
S&P Global Ratings also lowered its issue-level ratings on the company’s senior secured notes to ‘BB’ from ‘BBB-‘(one notch above the corporate credit rating). The senior secured debt has a ‘2’ recovery rating, indicating our expectation of substantial (70%-90%, rounded estimate 75%) recovery in a default scenario.

At the same time, S&P Global Ratings lowered its global scale rating to ‘B-‘ from ‘B+’ and its Canada scale rating to ‘P-4(Low)’ from ‘P-4(High)’ on the company’s preferred shares.

Finally, S&P Global Ratings removed all of its ratings on Aimia from CreditWatch, where they were placed with negative implications May 12, 2017. The outlook is negative.

The downgrade and negative outlook reflect our view of the significant risks and uncertainty Aimia faces following Air Canada’s previous announcement not to renew the company’s contract with Aimia post-June 2020. We believe this development will likely affect Aimia’s value proposition and pressure the company’s business prospects in the next few years. In our view, the loss of a major anchor redemption partner for the points accumulated by Aimia’s Aeroplan loyalty members will likely reduce the appeal of the Aeroplan program to its financial card partners’ customers. As a result, there is the meaningful risk of reduced gross billings (a proxy for cash revenue) and higher-than-average reward redemption activity (expenses) that could affect the company’s EBITDA for the foreseeable future. Although the near-term results might not reflect these risks, without an attractive airline partner announcement the possibility of a surge in redemption activity through 2020 could reduce Aimia’s cash flow and weaken its liquidity. The company plans to mitigate the risks through Aeroplan-focused initiatives, corporate-level cost cutting, and disposal of unprofitable and noncore assets. However, execution risks associated with cost-cutting initiatives or delay in asset sales could limit Aimia’s ability to support its profitability and financial flexibility.

Our negative outlook on Aimia reflects our view that there is an increased risk on the company’s cash flow and financial flexibility due to the uncertainty associated with rising reward redemptions and reduced gross billings along with limited visibility on member behavior toward the Aeroplan program. Also, the execution risks associated with potential cost savings and asset sales could further weaken the credit measures compared with our forecast scenario.

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

This follows the DBRS downgrade to Pfd-5(high) and the previous suspension of dividends and S&P Downgrade to P-4(high).

This entry was posted on Monday, August 14th, 2017 at 9:37 pm and is filed under Issue Comments. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.