The BPS spectrum of type I' string theory in a generic background is d
erived using the duality with the nine-dimensional heterotic string th
eory with Wilson lines. It is shown that the corresponding mass formul
a has a natural interpretation in terms of type I', and it is demonstr
ated that the relevant states in type I' preserve supersymmetry, By co
nsidering certain BPS states for different Wilson lines an independent
confirmation of the string creation phenomenon in the D0-D8 system is
found. We also comment on the non-perturbative realization of gauge e
nhancement in type I', and on the predictions for the quantum mechanic
s of type I' D0-branes. (C) 1998 Elsevier Science B,V.