ACE Aviation Holdings Inc., owner of Canada's largest airline, expects to raise as much as $201 million from an initial public offering of the Jazz regional carrier, the country's biggest income trust IPO in almost four months.
ACE hopes to sell 17.5 million units for $10 each in the Jazz Air Income Fund, according to sale documents distributed to investors. Firms managing the sale have an option to sell another 2.6 million units after the transaction closes the week of Jan. 30.
The IPO market for income trusts is reopening after stalling last September when the federal government said it might revise the tax status of trusts, which avoid most corporate taxes. In November, the government opted not to tax the trusts, paving the way for more sales, and chose to reduce the taxability of share dividends instead.
The Jazz units, to be priced the week of Jan. 23, will make monthly payouts equal to 9.5 per cent to 10.5 per cent a year. That compares with the average dividend yield of 7.6 per cent for the 71 members of the S&P/TSX capped income trust index.
"The higher interest rate than what we were expecting will make it even more attractive," said Karl Moore, a business professor at Montreal's McGill University who specializes in the airline industry. "There's going to be a good response in the marketplace."
The sale of as much as 20 per cent of the Halifax-based airline values the carrier at $1.13 billion, assuming the 9.5 per cent payout yield, the documents said. Jazz will pay out 90 per cent of cash flow to investors.
Jazz would be the second ACE business sold as an income trust. The Montreal-based company sold a 14.4 per cent stake in the Aeroplan customer-loyalty program through an IPO in June for $287.5 million. Last year, ACE chief executive officer Robert Milton targeted Aeroplan, Jazz and the company's maintenance unit for sales, arguing ACE stock doesn't reflect the combined value of the businesses. Air Canada is ACE's main airline.
Jazz had $906.7 million in revenue and profit of $135.2 million before interest, taxes, depreciation, amortization, gains and non-operating expenses in the 12 months to Sept. 30, the sale documents said.
Jazz has 122 aircraft that seat 37 to 75 passengers and about 3,800 employees. The carrier flies to 74 Canadian and United States cities, the company's website said. Jazz will boost its fleet to 135 planes by July and increase the number of weekday flights 8 per cent to 746 departures by the third quarter, the documents said.
CIBC World Markets, RBC Capital Markets and 11 other banks are managing the sale, sharing fees of 2.75 per cent, or as much as $5.5 million.
Income funds raised $19.2 billion in 2005, compared with $15.9 billion in 2004, according to CIBC World Markets estimates. The IPOs accounted for more than a quarter of the total, through 37 offerings, the bank said in a Jan. 6 research note.
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