DBRS Comments on the Sale of Aimia Inc.’s Aeroplan Loyalty Business

DBRS Limited (DBRS) notes that Aimia Inc. (Aimia or the Company) has reached an agreement in principle to sell its Aeroplan loyalty business to Air Canada, The Toronto-Dominion Bank (rated AA with a Positive trend by DBRS), the Canadian Imperial Bank of Commerce (rated AA with a Stable trend by DBRS) and Visa Canada Corporation (collectively, the Consortium) for approximately $450 million in cash (the Transaction). As part of the Transaction, the Consortium will assume the $1.9 billion Aeroplan redemption liability. The agreement has been approved by Aimia’s board of directors and is supported by the Company’s largest shareholder, Mittleman Brothers, LLC, which owns approximately 17.6% of the outstanding common shares. The Transaction is subject to the satisfactory conclusion of definitive transaction documents, Aimia shareholder approval and certain other conditions, including due diligence, receipt of customary regulatory approvals and completion by the Consortium of credit card loyalty program and network agreements for future participation in Air Canada’s new loyalty program. The Transaction is expected to close in the fall of 2018.

Aimia’s ratings remain Under Review with Developing Implications, where they were placed on July 26, 2018, following the Consortium’s initial proposal to acquire the Aeroplan business for $250 million (see the DBRS press release “DBRS Places Aimia Inc. Under Review with Developing Implications” dated July 26, 2018). The Under Review with Developing Implications status reflects the uncertainty over how the net proceeds will be used and what the future strategic and financial management intentions of the Company will be following the Transaction.

DBRS notes that although the Consortium’s proposal is not for Aimia shares, the sale of the Aeroplan program could be sufficient in size to trigger a change-of-control provision in Aimia’s Senior Secured Debt that requires the occurrence of both a change of control and a rating event (i.e., a rating downgrade of the Senior Secured Debt). If triggered, the provision requires that an offer be made to repurchase at a price equal to 101% of the outstanding Senior Secured Debt of the Company.

DBRS notes that as of Q2 2018, Aimia had approximately $329 million of debt, $249 million of cash, $22 million of restricted cash and $260 million invested in corporate and government bonds. The debt consists of $250 million of Senior Secured Notes due May 2019 and $80 million (including $9 million of letters of credit) drawn on the credit facility, which matures in 2020. Following the Transaction, Aimia would be meaningfully smaller in size and consist of Proprietary Loyalty Canada and Insights & Loyalty Solutions (which includes Air Miles Middle East), along with investments in PLM Premier, S.A.P.1. de C.V.; Cardlytics; and Think Big Digital. The Company would have approximately $720 million of cash and $260 million of bond investments that would be sufficient to repay the outstanding debt.

DBRS will proceed with its review as more information becomes available.

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

The principal methodologies are Rating Companies in the Consumer Products Industry, DBRS Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers and DBRS Criteria: Recovery Ratings for Non-Investment Grade Corporate Issuers, which can be found on dbrs.com under Methodologies.

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