DBRS Comments on Aimia Inc.’s Joint Agreement with TD and CIBC

DBRS today notes Aimia Inc.’s (Aimia or the Company) confirmation of a ten-year financial credit card agreement for its Aeroplan program, announced on September 16, 2013, with both the Toronto-Dominion Bank (TD; rated AA, Stable) and Canadian Imperial Bank of Commerce (CIBC; rated AA, Stable) (the Agreement), effective January 1, 2014.

On July 5, 2013, DBRS confirmed Aimia’s ratings following the Company’s announcement of a ten-year financial credit card agreement with TD. At that time, DBRS’s ratings confirmation was based on the certainty provided from a new agreement and DBRS’s view that the terms of the new agreement were more attractive for the Company, regardless of whether or not CIBC would match the terms. The rating action also took into consideration that an agreement with TD would be subject to significant migration risks, which could negatively affect the Company’s gross billings.

From Aimia’s perspective, the economics of the new three-party deal will remain largely consistent with those under the previous agreement with TD. DBRS believes the Agreement will significantly reduce potential migration risks as cardholders with CIBC banking relationships will remain CIBC Aeroplan cardholders. As part of the new Agreement, Aimia will contribute $150 million toward TD’s purchase of approximately half of CIBC’s Aeroplan credit card portfolio. DBRS believes that the effect on the Company’s credit risk profile of any potential increase in leverage to fund this payment would be more than offset by the stability that comes with reduced migration. DBRS notes that Aimia may be required to pay, or entitled to receive, up to $100 million, depending on the net migration of Aeroplan-branded credit cards between CIBC and TD over the next five years.

Going forward, DBRS expects Aimia’s operating performance to benefit over the longer term from the growth that will come with increased customer engagement resulting from enhancements to the Aeroplan program, as well as higher pricing from the Agreement.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The applicable methodologies are Rating the Consumer Products Industry and DBRS Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers (Excluding Financial Institutions), which can be found on our website under Methodologies.