AIM.TO - Aimia

[wabuffo]

strange announcement and strange timing...

 

wabuffo

[deleuze68]

I just don't understand how this company is investible. If I wanted to time the market for swing trades surely I could flip the coin myself rather than pay  Mittleman to do it for me?

[Homestead31]

wabuff curious what was strange?

 

deleuze curious why you think this was market timing?  is it your position that during March when panic was in the air there were no opportunities to invest on a fundamental basis?  is it your position that fundamental value has not changed over the last 3 months amidst the fastest rally on record?

 

not trying to be intentionally snarky here - i am just having trouble understanding how you could be critical of a management team who was willing to put their own capital at risk during what was clearly a very unusual period.  we're not talking about "Swing trading" charts here.  we are talking about the biggest economic disruption in history, and the fastest stock market recovery in history here.  i would bet that 95% of the investing world right now is wishing they were better able to take advantage of those moves, and i'd bet that less than 5% of public companies had the fortitude to actually take advantage.  i consider it a sign of strength to have a management team and board who were able to take advantage in a prudent manner rather than just sucking their thumb, but i am genuinely interested in how you think bold action during unusual times makes this uninvestable?  am i missing something?

[wabuffo]

wabuff curious what was strange?

 

Why issue a press release on something so immaterial to financial results?  That's a bit strange

 

And to timing....there's been a flurry of press releases this week announcing "good news".  Feels like we are being "managed".  My spidey-sense is tingling.  Maybe its nothing.

 

wabuffo

 

 

[Homestead31]

if they hadn't issued a PR to announce it when they first made public equity investments, you and others would have blown a gasket upon later learning what they were doing.  so if the right thing to do is issue a PR when they started doing it, then isn't a PR also the right thing to do if they are no longer doing it?

 

i think the right way to interpret the press release announcing that they exited the investments is that they are telling you that they don't plan on playing stock market as a normal part of the business.  rather, when the world was on fire they took advantage.  the world is no longer on fire, so they are out of the market, and back to business as usual. 

 

again, i am confused as to how this does not suggest that they are trying to be thoughtful, opportunistic, and humble, as you would expect them to be considering how much of their own money is at stake.

[Dr. Aybolit]

a C$7M gain does seem a little paltry to warrant a celebratory press release.  and while the gain doesn't appear (to me) to be particularly material at 3% of shareholder equity (and probably 1% of NAV), I imagine that it may meet Canadian rules for materiality threshold versus annual net income for example, or maybe just the closing out of the portfolio itself is a material change?  I am completely speculating on that as i don't know how it works up there, or even how it works down here come to think of it, in terms of disclosure rules. 

 

but i don't it mind either.  more disclosure is better than less (as long as they disclose losses with the same frankness).  and this does pay some bills.  C$7M is more than half of the annual preferred stock dividends.  so anyway, small net positive, but not something i feel is worth over-analyzing here.

 

I'm more interested in the apparent recovery underway in out of home (OOH) ad spending in China, according to recent reports on Focus Media (002027 CH).  Chinese broker CICC was quoted on 5/25 as seeing "large earnings upside" on Focus Media as "demand for advertising has started recovering since April."

 

If so, and if it carries over to OOH ad spending in general over there, Aimia may have really timed the Clear Media buy perfectly, and that C$76M investment is undoubtedly material.  l imagine it's already worth a lot more than what they paid for it. 

 

-Dr. Aybolit

[wabuffo]

And to timing....there's been a flurry of press releases this week announcing "good news".  Feels like we are being "managed".  My spidey-sense is tingling.  Maybe its nothing.

 

Weren't we supposed to see the Kognitiv deal close "during the week of June 8th"? Didn't they say this after news of Air Canada's legal action to block the deal?

Aimia denies the allegations and believes the application is entirely without merit and an abuse of process. Aimia and Kognitiv intend to close the transaction during the week of June 8, 2020.

 

wabuffo

[Philbert77]

So what are the thoughts on the Aimia Preferred shares? Are they going to be redeemed? are they just going to keep them around? They are priced quite cheaply right now. What is the logic for the low price?

[wabuffo]

So what are the thoughts on the Aimia Preferred shares? Are they going to be redeemed? are they just going to keep them around? They are priced quite cheaply right now. What is the logic for the low price?

 

I think the new owners will not redeem them and keep them outstanding.  They view them as a cheap source of capital.

 

wabuffo

[wabuffo]

Where are the buybacks?  Seem to recall that AIMIA announced a normal course issuer bid for 7m shares....  sound of crickets so far.

 

Also - why have they not announced Kognitiv deal close?  It was supposed to close early last week. 

 

wabuffo

[Homestead31]

no comments on UAL's loyalty program and the $5B loan it is securing at L+300?

 

 

[wabuffo]

no comments on UAL's loyalty program and the $5B loan it is securing at L+300?

 

Deal term sheet and Mileage Plus financials available here:

https://www.sec.gov/Archives/edgar/data/100517/000110465920073190/tm2022354d3_ex99-1.htm

 

I gotta say - I still don't understand why AIMIA let Aeromexico off the hook and didn't insist on a dividend recap right here and now.  L+300 doesn't seem like a punitive rate.

 

Here's a quick and dirty comparison between PLM, LifeMiles and MileagePlus 2019 FY financials and loan size (including net income/member). 

 

It looks to me like PLM could've done a dividend recap worth $225-$275m at a low rate (L+300) with Aimia getting 49% of that. Aeromexico stripped out $100m - so $200m for both Aeromexico/Aimia looks easy peasy based on the MileagePlus - United deal.

 

Instead, the new AIMIA mgmt team let Aeromexico get its dividend recap (if one sees thru the press release to the actual deal terms) while Aimia gets bupkis and gets to wait like sorry saps for the next time while everyone else raids their loyalty subsidiaries for cash right now.

 

I really hope someone buttonholes the AIMIA mgmt team on this one on the next conference call.

 

wabuffo

[Dr. Aybolit]

UAL / MileagePlus is a good template to look at for what the PLM recap should look like.  Getting this done probably eases the way for PLM to do theirs.

 

But UAL owns 100% of MileagePlus and UAL is guaranteeing the loan, so that probably helps get their deal done at a better rate.  Whereas Aeromexico keeps PLM off balance sheet and probably would want to keep it that way, so I wouldn't expect AM to guarantee their leveraged recap of PLM, meaning maybe harder to get done at same rate.

 

But overall, encouraging news i think. 

 

re: Kognitiv, I too am frustrated by lack of news.  Maybe they disclaimed away need to update market vs. prior expectations, but still, very uncool to keep us all in the dark.

 

that said, relentless insider buying makes me think they are not concerned about it.  so i will take comfort in that.

[wabuffo]

https://www.newswire.ca/news-releases/aimia-prevails-over-air-canada-on-injunction-application-transaction-with-kognitiv-now-closed-831718101.html

 

Aimia won in Court vs Air Canada and promptly closed its deal with Kognitiv.

 

wabuffo

[wabuffo]

https://www.bnnbloomberg.ca/aeromexico-mulls-u-s-bankruptcy-filing-amid-travel-collapse-1.1453285

 

Ruh-Roh!  AIMIA should’ve insisted on the dividend recap instead of letting PLM be an unsecured lender...     

 

Good news is the buyback on Monday should see some great bargain prices.  >:(

 

wabuffo

[samwise]

Unsecured? Wasn’t the stake in PLM the collateral? So worst case AIM ends up owning it for 100M?

 

Absolute worst case PLM is worth nothing.

 

Btw, anyone knows how PLM points are earned? Is a big part credit cards ( and PLM is gushing cash currently), or is it mostly from airline tickets ( and PLM is just losing its SGA currently). Makes a big difference in quality of PLM vs say, Aeroplan.

[wabuffo]

Unsecured? Wasn’t the stake in PLM the collateral? So worst case AIM ends up owning it for 100M?

 

PLM isn’t really the collateral since Aeromexico doesn’t actually have to pay back the loan in cash.  The terms of the deal allow Aeromexico an option to “pay it back” as a credit to a future dividend recap of PLM. 

 

Hard to default on a loan you don’t actually have to pay back in cash...So AIMIA will never get more of PLM because, technically Aeromexico can’t really ever default.

 

As I said earlier, Aeromexico got their dividend recap early and now AIMIA will...wait....and wait.

 

Of course this could just be posturing by Aeromexico vs it’s creditors (using bankruptcy threat).

 

wabuffo

[Dr. Aybolit]

Aeromexico refutes bankruptcy story:  https://www.flightglobal.com/strategy/aeromexico-says-it-will-not-file-for-bankruptcy-despite-lack-of-liquidity/138923.article#:~:text=Aeromexico%20says%20it%20will%20not%20file%20for%20bankruptcy%2C%20despite%20lack%20of%20liquidity,-By%20Pilar%20Wolfsteller&text=Mexican%20flag%20carrier%20Aeromexico%20says,coronavirus%20pandemic%20decimated%20its%20liquidity.

 

[wabuffo]

Aeromexico refutes bankruptcy story

 

"we have tremendous faith in our coach, ok? ...."

 

wabuffo

[Dr. Aybolit]

ha ha ha.  well, i think filing for chp. 11 anytime soon after making that declaration could have worse repercussions than losing a few season ticket holders over a quick turnabout on a head coach, including maybe a securities fraud charge.

 

maybe the alternative sources of financing Aeromexico mentioned that they are pursing include a leveraged recap of the loyalty program like United is doing?  though it would partly be in replacement of the loan they are getting from PLM now, it would be above and beyond that amount most likely, by a significant chunk I'd think.

 

so I'm still betting on that happening sooner than later.  and if UAL's prices and trades well, probably a lot sooner.

 

clearly, Aimia went above and beyond to help AM avoid bankruptcy, to reboot the partnership from the brink of lawsuits back to some form of symbiosis, extend the deal, remove prospect of an Air Canada / Aeroplan level of unfairness, and get leveraged recap done.  but if AM files anyway and that delays the leveraged recap for an extended period than yes, a major sought benefit goes out the window for the time being, and the new team gets a ribbon of shame.

 

but again, i really don't think they could have done the leveraged recap sooner, otherwise they would have.  UAL is a tad more bankable than Aeromexico, and given the extra layer of aversion to Mexico, the MXN peso, AMLO and the unfinished airport, etc., it's not hard to imagine why bankers might have not been rushing to help them do that deal.

 

remember also the Aeromexico, to their credit, raised US$400M Seniior Unsecured bonds at 7.00% on 1/31/20, which now trade at $25.50.  that was a Goldman Sachs / Morgan Stanley deal.  imagine them almost immediately going back to their customers with another Aeromexico related issue while that one was literally in the process of nose diving in flames?  probably a tough sell.

 

anyway, i think Q3 or Q4 at the latest for PLM leverage recap.  unless AM files chp. 11, in which case I will never speak of it again.

 

- Dr. Aybolit

[wabuffo]

so I'm still betting on that happening sooner than later.  and if UAL's prices and trades well, probably a lot sooner.

 

I think it would be a huge missed opportunity if they don't do it - sooner rather than later.  My only concern is that Aeromexico may have less of an incentive to do it since it wouldn't net them any new cash.  Based on the benchmarks with United's MileagePlus deal, PLM could safely do $200m USD - which would net Aimia $100m, but would only wipe out Aeromexico's debt to PLM. 

 

One option could be that Aeromexico converts the $50m loan portion of the previous deal with PLM to a $50m seat payable (like the other half) and takes a $100m further distribution in the recap. 

 

We'll see I guess.  Here's hoping that you are correct.

 

wabuffo

[Dr. Aybolit]

i think they could do a bit more than US$200M, maybe US$250M (would be 3.5x EBITDA of US$70M), so there could be net new cash to AM.  but even if the leveraged recap just pays off AM's debt to PLM, that is a net deleveraging of AM's balance sheet, so that is important to them and I'd bet it's part of whatever targeted deleveraging program they are pitching around to their various creditors.

 

so hopefully my theory is correct and that is incentive enough for them to move forward with leveraged recap asap after the UAL gets done.

 

meanwhile the insider buying at Aimia continued yesterday, which i really like to see.  https://www.insidertracking.com/node/7?menu_tickersearch=Aimia+%7C+AIM*CA

 

the hyperlink above left off the last three characters, will re-paste here in hopes it works better this time:  https://www.insidertracking.com/node/7?menu_tickersearch=Aimia+%7C+AIM*CA

 

nope, didn't work.  anyway just cut and paste the entire link, works that way.

 

 

 

[wabuffo]

https://www.sec.gov/Archives/edgar/data/100517/000110465920077050/tm2023500d1_ex99-1.htm

 

United's MileagePlus loyalty program upsizes its debt offerings to $6.8b from initial $5b due to high demand.  Its made up of:

(a) $3.8 billion in principal amount of 6.50% senior secured notes due 2027, and

(b) $3.0 billion term loan facility

 

Based on 2019 net income benchmarks vs MileagePlus, PLM could issue well over $300m USD in debt.  This may get Aeromexico's attention since it would mean $150m in distributions to Aeromexico and AIMIA.

 

wabuffo

[Philbert77]

Anyone know why trading is halted?

[Homestead31]

the audio from an investor call with TD is available on Aimia's IR website:  https://corp.aimia.com/investors/events-presentations/

 

it is worth a listen, with a few new nuggets of information.

 

Of note:

- a dividend recap at PLM isn't possible until PLM re-domiciles.  Sounds like that is in the works, and presumably recap will happen after that.

- details on what strained the relationship between former Aimia management and Aeromexico

- commentary on why Aeromexico did not want to invest properly in PLM prior to establishing a mechanism to complete a takeout. In other words, there was a conflict for Aeromexico (and delta) because they didn't want to build the business, and then later have to buy it out at a higher level, so they were incentivized to under invest

- thoughts on an Aeromexico bankruptcy "we've treated this investment as if they are going to file bankruptcy next week"

- hints on synergies between Kognitiv and Aimia's former loyalty assets

- comments on Clear Media

- thoughts on continuing to buy back stock.  unrelated, they announced this morning that they are putting buybacks on autopilot, which possibly suggests there are other things in the works

 

its an hour long call so there is more there as well.  those were just things that stuck in my head, but i think the management team is doing all the right things.  also nice to see them out telling the story with the sell side.  i assume that will only accelerate as management realizes that the prior management team's incompetence put a stink on the stock that needs to be eliminated