Author Topic: AIM.TO - Aimia  (Read 182619 times)

wabuffo

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Re: AIM.TO - Aimia
« Reply #670 on: May 13, 2020, 02:30:46 PM »
Not what I meant.  If he hadn't wrested control of AIM, he would've been squeezed out of his Clear One position by the tender and been forced to tender shares. 

wabuffo
« Last Edit: May 13, 2020, 03:01:04 PM by wabuffo »


samwise

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Re: AIM.TO - Aimia
« Reply #671 on: May 13, 2020, 03:20:55 PM »
oh yes. Agreed.
He is lucky with timing too. I think the tender ends within a week.

Homestead31

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Re: AIM.TO - Aimia
« Reply #672 on: May 13, 2020, 06:14:45 PM »
I dunno:
- A severely distressed borrower (Aeromexico) borrows $100m and the terms you give them are: 
- Borrow $100m unsecured (yeah sure its secured by Aeromexico's equity in PLM, but this quickly gets circular if Aeromexico goes titsup, since the $100M USD is gone and the PLM equity is impaired. ie, AIM owns a slightly greater percentage of PLM that, in turn, is worth far significantly less).

wabuffo

why would this get "circular"?

plenty of businesses continue to operate during bankruptcy... so even if aeromexico went bankrupt, it is entirely possible - if not even likely since they are mexico's flag carrier - that they would continue to operate, which means PLM would continue to operate without impairment.  Conceivably $50M of the loan to Aeromexico would be in a precarious position, but it is not clear to me that the 50M of reward seats would be affected.  Do you have anything to point to that suggests it would be affected?

and you neglected to cite the commentary around lifemiles and avianca in your recap of the call.  do you have any thoughts there?  because it seems like despite Avianca's bankruptcy, lifemiles is continuing to operate without impairment.  is there a reason to believe that PLM would be impaired by an aeromexico bankruptcy that does not apply to Avianca?

Homestead31

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Re: AIM.TO - Aimia
« Reply #673 on: May 15, 2020, 07:01:41 AM »
worth reading for those concerned about bankruptcy at Aeromexico:  https://www.forbes.com/sites/advisor/2020/05/15/what-happens-to-your-miles-when-an-airline-declares-bankruptcy/#529b1dce2a16

TLDR: nothing is ever certain, but seems very likely that PLM and thus Aimia would be just fine if Aeromexico declared BK... in fact, one could even argue that on a longer timeline Aimia would come out ahead because if Aeromexico goes BK, Aimia will wind up owning a bigger piece of PLM due to the secured loan.  That doesn't mean that the stock wouldn't get hit in the near term - surely it would - but long term holders would likely come out ahead

wabuffo

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Re: AIM.TO - Aimia
« Reply #674 on: May 15, 2020, 08:55:03 AM »
Homestead31 - you make good points, and I don't necessarily disagree with you about normal airline bankruptcies and the bankruptcy-remoteness, legally, of the loyalty programs when they are separate legal entities...

But:

1) Normal bankruptcies of airlines are individual reorganizations when the aviation industry is operating with normal or near-normal demand levels.  So yes, operationally, nothing changes while the creditors work out a restructuring with the other creditors and unions.   But I think you would agree that every airline in the world is essentially insolvent - AND MOST IMPORTANTLY - demand is down 90%.  No one will even provide DIP financing.   And what will consumers and governments demand from airlines before they are allowed normal flights in terms of plane capacity restrictions (middle seats empty, etc)?  When will international travel/border restrictions be removed for non-essential flight operations? 

AIMIA (via PLM) is lending into that environment.  Why aren't PLM's credit card partners also pre-buying seat redemptions on Aeromexico flights?  I haven't seen any concurrent announcements from Banco Santander, have you?  Some might argue PLM is even more important to banks and their front-of-wallet loyalty credit cards than it is to Aimia.

2) I looked at your example of Avianca and its LifeMiles loyalty subsidiary.  It looks like it has a $400m USD loan o/s that has fallen from 100-cents on the dollar to 80-cents as of today.   But I think we have to equalize the capital structures if we want to make comparisons to PLM.  I'm just going to make up some numbers here because LifeMiles equity is privately-held (SWAG's really)

LifeMiles:

Debt---------------------$400M x .80 = $320
Redemption Liability----$150M x .65 = $100
Equity -------------------$200M x .25 = $ 50
TOTAL CAPITAL ------$750M        =$470  (62.5%)

PLM:

Redemption Liability----$230M x .80 = $184
Equity--------------------$700M x  ?? = $???
TOTAL CAPITAL ------$930M x .625=$580

So backsolving $580M-$184M= $396M for the equity.    So at $400M valuation - that's a pretty big impairment from the current $700M valuation (using the 7.5x adj EBITDA metric and 2019 PLM adj. EBITDA).  I would argue its even worse, because PLM's cash position is low because of the $110M USD cash outflows in this deal.

Look - I'm not saying that AIM made a bad deal with AeroMexico but I don't love it.  I think they could've waited since they have a contract til 2030 and maybe gotten an even better deal as AeroMexico's desperation grows.  What I do see is that they have increased the risk profile tremendously if Aeromexico defaults and/or liquidates. But I sense this new management team was desperate to get press releases out quickly because their investors are fleeing from them.   

Aeromexico continuing to operate mean little when it means continuing to operate at 10-40% of normal passenger volumes.  Will the government of Mexico rescue it?  I don't know - but they could do a GM and liquidate it into an new GM/old GM structure and stiff creditors while taking all the good assets (like their 51.1% ownership of PLM) into a new structure.  Lord knows, there's lots of planes and pilots available on the market.

Full disclosure - I still own some of this stock.  But I'm not excited about it.

wabuffo
« Last Edit: May 15, 2020, 09:46:40 AM by wabuffo »

samwise

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Re: AIM.TO - Aimia
« Reply #675 on: May 16, 2020, 08:15:18 PM »
Anyone worried about cash flow here?

20 people at headquarters cost 15 million. Lucrative jobs!

Owns a few private holdings, no cash dividends from them likely, maybe some on the kognitive prefs.

190 million cash to use the tax loses. If they buy something at 10% FCF, that barely covers headquarters costs, and doesn’t cover preferred dividends. So they will need to buy with lots of leverage, or at a 20% FCF yield to be cash flow break even.

NAV rich, cash poor.

I just hope they don’t start charging 2 and 20 for their investment skills like Falcone at HCHC. That hasn’t gone so well.

Edit: they are losing investors. Recent update in SEDAR:
AIM stock controlled went from 25.4% to 20.8% due to “termination of discretionary investment authority “
« Last Edit: May 17, 2020, 08:52:05 AM by samwise »

kab60

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Re: AIM.TO - Aimia
« Reply #676 on: May 16, 2020, 09:20:23 PM »
Yep, those HQ quarter costs seems crazy. If they can't bring those down I'd capitalize it at a very high multiple. Maybe like 16-20x like PE management fees. Hc2 is a good analogy. Decent dealmaking, absolutely killed by HQ costs and interest.

Dr. Aybolit

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Re: AIM.TO - Aimia
« Reply #677 on: May 17, 2020, 09:25:04 AM »
So I'm disappointed by the 7.5x EBITDA multiple for PLM (I remain convinced 10x is minimum fair value), albeit somewhat assuaged by the US$400M (C$560M) minimum, which is much higher than the sell-side or bears here have estimated, and nearly C$6.00 per Aimia share. I hope we can take $0 off the discussion table now.

Wabuffo you mistakenly consider points liability in enterprise value, as I've pointed out before, that is never done (except for Alexander Capital report, questionable not only for that novel treatment of the points liability but also for excluding LifeMiles from the comps, beyond bizarre) in this industry or in consideration of loyalty values in airline M&A more broadly, it is simply a negative working capital benefit that is intrinsic to the nature of the business as long as it remains a going concern.

and the comments about the company being "cash poor" are perplexing in light of the significant cash balance and no debt.  and as for cash flow, PLM continues to pay cash dividends, albeit at a vastly lower rate this year, but will likely resume once business returns to normal.  And from the conf call it sounds like they are in fact considering a leveraged recap of PLM at some point, which would mean more cash coming to Aimia (as soon as debt market allows).

I reiterate a point I made in a previous post that Aeroplan sailed through the bankruptcy of Air Canada in 2003 with a very brief (one or two quarters) of impact, before resuming its path of steady FCF generation (on an annual basis) and growth.

from my April 3rd post here:  " Anyway I see the recent news as progress.  Aeromexico should be much more pliant now that they truly need cash.  And PLM should be highly resilient, as Aeroplan was, even in 2003 after 9/11 and SARS when Air Canada went bankrupt, Aeroplan continued growing membership and generating cash, see page 19:  https://corp.aimia.com/wp-content/uploads/2017/11/Investor-Presentation-March-2009.pdf   "

lastly, I think the HQ costs are very reasonable now, as I can't think of a public company, here or in Canada, that could operate with much less.  and remember C$15M = US$11M.  and given where those costs where, my god people, you are complaining now? 

and I love the Clear Media buy, that is the kind of thing I was hoping to see, and to see it happening is very encouraging. 

more and more this smells like Leucadia circa 1980, or Fairfax 1985.  cut costs, invest in cheap FCF-generating things, frugal, opportunistic, contrarian, value-oriented owner-operators involved, major skin in the game.   cash rich into a major mark-down in valuations on offer.  obviously anything can be screwed up, but what a perfect set-up.

-Dr. Aybolit

 

samwise

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Re: AIM.TO - Aimia
« Reply #678 on: May 17, 2020, 02:04:52 PM »
Dr. Do you have an estimate of what FCF Aimia can generate after the cash is deployed?

Yes a lot of good things can happen in some good scenarios, including the recap of PLM.

I own some of this. But the HQ expenses seem excessive to me. RBCN (cash shell currently), spends 2.5 million annually, SPRT spends 7.6 million on G&A. What is AIM spending 15 million on when it has no operations now?

Now I am going to have a drink and hope for good outcomes only.

Dr. Aybolit

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Re: AIM.TO - Aimia
« Reply #679 on: May 17, 2020, 05:20:49 PM »
holdco cash burn probably turns positive in 2021 if remaining cash deployed with reasonable FCF and dividend payout.

PLM dividend paid to Aimia in Q1 was C$9.5M, plus C$7M expected in Q2, and none in second half, so this year is a below average C$16.5M in dividends received.  I think 2021 returns to normal, implying a C$25M dividend from PLM, minus C$13M in pref. divs., minus C$5M in tax on pref. divs. = C$7M minus C$15M in holdco costs = -C$8M in cash burn which is 4.2% of the C$190M in cash remaining.  So they'd have to clear 4.2% on that cash to get the holdco to a positive carry situation. 

but while a significant positive carry would be welcome, is it not the driver of valuation creation here, it's about the gaping disparity between current price and the current sum of the parts at fair value and the rate at which the investments grow.  no one was trying to peg a price to FCF multiple on the BRKA holdco back in the early days.