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ACE Aviation Holdings Inc. will raise $250-million by selling 25 million units of the Aeroplan Income Fund at $10 a unit, valuing the frequent-flier program at $2-billion.

The units are expected to provide an annual yield of 7 per cent, based on the initial public offering price, the companies said. ACE is initially selling 12.5 per cent of the business.

The popular customer loyalty program is expected to be the first of several spin-offs by ACE, the parent of Air Canada, in the coming years. Strong demand for the Aeroplan issue has led to speculation that more units could be offered to the public before year-end.

"We are extremely pleased to see the market valuing Aeroplan at $2-billion, making it one of Canada's largest business trusts and the first-ever monetization of an airline frequent flyer program," said Robert Milton, ACE's chairman and chief executive.

Underwriters have the option to buy as many as 3.75 million additional units at the offering price for a 30-day period after the closing, as expected. The additional units, all of which are expected to be bought, will boost the total amount raised for ACE to $287.5-million, or 14.4 per cent of the business. ACE would then retain an 85.6-per-cent stake in Aeroplan, assuming the over-allotment is fully sold.

Once the IPO is completed, Aeroplan LP will keep about $100-million of the proceeds "to partially fund a reserve for Aeroplan Mile redemptions and for certain capital expenditures."

ACE will receive about $125-million in proceeds, or $160-million if the overallotment option is fully exercised. "ACE will use the proceeds for general corporate purposes and will retain control of Aeroplan LP," the company said.

The final prospectus for the fund will be filed with Canadian securities regulatory authorities Wednesday.

The fund has received conditional approval for the listing of its units on the Toronto Stock Exchange. Closing of the offering, subject to customary conditions, is expected to occur on or about June 29. Distributions will be paid monthly.

The underwriting syndicate is co-led by RBC Capital Markets as the sole book runner along with CIBC World Markets and Genuity Capital Markets.

The fund's units will trade on the TSX under the symbol AER.UN.

Aeroplan, which has about 5 million members, is a loyalty rewards program. It offers members the chance to accumulate Aeroplan Miles through about 60 commercial partners and then redeem those miles for airline seats, hotel rooms or car rentals. Aeroplan has estimated that 17 per cent of points expire without being redeemed.

Montreal-based Air Canada, which emerged from bankruptcy protection last September, founded Aeroplan in 1984.

Aeroplan's revenue last year was almost $700-million. Of that amount, financial services partners accounted for 63 per cent, Air Canada 27 per cent, other travel services 8 per cent and consumer products partners the remaining 2 per cent. After subtracting various expenses, there could be $140-million this year in cash distributions available to unitholders, according to the company's prospectus.

ACE Class B shares fell 10 cents to $41.35 in Toronto. This year, they've risen 17 per cent.

With files from reporter Brent Jang.

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