Air Canada parent ACE Aviation C$250 million convertible talked at 4.25%-4.75%, up 22.5%-27.5%

By Ronda Fears

Nashville, March 22 - Air Canada parent ACE Aviation Holdings Inc.'s C$250 million offering of 30-year convertible senior notes is being talked with a coupon of 4.25% to 4.75% with a 22.5% to 27.5% initial conversion premium. The deal is for next week's business.

In addition, ACE Aviation, also the parent of Jazz, is selling C$350 million of stock, with proceeds from both deals earmarked to refinance the C$540 million credit facility from GE Capital Corp. used as bankruptcy exit financing last September.

RBC Dominion Securities Inc., Merrill Lynch Canada Inc. and BMO Nesbitt Burns Inc. are joint bookrunner of the deal, which is being sold in Canada and in the United States under Rule 144A.

Pricing is slated after the market closes March 29.

ACE Aviation said refinancing the GECC facility will save C$27 million in annual interest expense. The company also said that Air Canada had obtained commitments from a bank syndicate led by the Bank of Montreal for a new C$300 million two-year revolving credit facility, subject to the completion of the equity offering.

Buyers of the stock in Canada will receive class B voting shares. Buyers in the United States will receive class A variable voting shares.

On Tuesday, ACE Aviation class B shares closed up C$1.15, or 3.3%, at C$36.00 and the class A shares up C$1.06, or 3%, at C$36.00 on the Toronto Stock Exchange.

After the transactions, ACE Aviation said it will have cash and committed credit facilities of C$2 billion with net debt of about C$4 billion. On Sunday, the company reiterated its 2005 EBITDA forecast for C$1.6 billion.

A 15% greenshoe is available on both offerings or C$52.5 million for the convertible.

In the registration material, ACE Aviation also said it continues "examining a range of alternatives to maximize the value of its investment in Aeroplan for the benefit of all of its shareholders." Aeroplan is its frequent flyer program, which the company said is a growing high margin business with expectations of higher revenues through the expansion of relationships with existing partners and the addition of new partners across various retail segments.

Analysts have been expecting ACE Aviation to possibly spin off the Aeroplan business.

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