DBRS Mutters Darkly about Aimia

DBRS has noted:

that Aimia Inc. (Aimia or the Company) has sold its Nectar loyalty program and related assets to J Sainsbury plc (Sainsbury’s) for approximately $105 million (the Transaction). As part of the Transaction, Aimia will send to Sainsbury’s (1) $183 million of cash to provide coverage against the Nectar redemption liability and (2) $96 million of working capital related to December redemptions. Aimia will use $100 million of the proceeds from the Transaction to repay amounts outstanding on its credit facility.

Aimia purchased the Nectar loyalty program in 2007 for approximately $755 million. Nectar is the largest component of Aimia’s International Coalitions Segment, which generated $550 million of gross billings for the last 12 months (LTM) ended September 30, 2017 (25% of the Company’s total), and $68 million of adjusted EBITDA for the LTM ended September 30, 2017 (29% of the Company’s total).

The Transaction weakens Aimia’s business risk profile because of its impact on the Company’s size and scale, geographic diversification and customer concentration risk. Pro forma the Transaction, DBRS believes the Company’s debt profile is more manageable as a result of the repayment of $100 million of debt to a total of $358 million (pro forma, at September 30, 2017) and the $395 million of cash on the balance sheet (pro forma, at September 30, 2017). While the relevance of the Company’s adjusted debt-to-adjusted EBITDA ratio has been substantially reduced, DBRS expects that, pro forma the Transaction, it will remain near 2.0 times, in line with historical levels.

To receive the required lenders’ consent to complete the Transaction, Aimia agreed to make amendments to its credit agreement. These include (1) the repayment of $100 million outstanding on the credit facility, (2) a reduction in the limit of the facility to $208 million from the previous $300 million, (3) a mandatory quarterly cash flow sweep equal to 50% of the prior quarter’s free cash flow, (4) tighter leverage covenants and restrictions around common and preferred dividend payments, (5) the replacement of the Deferred Redemption Reserve Fund with a minimum liquidity covenant and (6) the restriction of using proceeds from the credit facility to repay any Senior Secured Notes. DBRS notes that Aimia’s $250 million of Senior Secured Notes mature prior to the Company’s credit facility in May 2019, and that the Notes will have to be refinanced or repaid using cash, internally generated cash flow and/or the potential for further non-core asset sales.

DBRS will continue to monitor Aimia’s customer engagement, reward redemptions and the competitive environment on a quarter-by-quarter basis, with the next quarterly results to be released on February 14, 2018. Should mileage accumulation decrease and/or redemptions accelerate more than DBRS’ expectations, in the absence of new partnerships, divestitures and/or capital raises, a downgrade could result.

The common equity got whacked:

The parent company of loyalty card Aeroplan faced another brutal day on the Toronto Stock Market as its shares plummeted Friday after rating agency DBRS warned about a possible downgrade on the sale of its Nectar business at a substantial loss.

Shares of Aimia Inc. fell nearly 17 per cent to $2.31 in Friday trading on the Toronto Stock Exchange after losing 25 per cent on Thursday.

And preferred shareholders aren’t too happy either:

Click for Big

DBRS downgraded the AIM preferreds to Pfd-5(high) in August 2017, following the suspension of preferred share dividends by the company and the subsequent downgrade to P-4(high) by S&P.

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

One Response to “DBRS Mutters Darkly about Aimia”

  1. BarleyandHops says:

    The Transaction weakens Aimia’s business risk profile because of its impact on the Company’s size and scale

    An old saying I somewhat remember:

    Dont let the door hit you on the way out.

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