* USD25bn of orders flood in as GM heads back to high grade
* Cheap debt refinances 9% dividend-paying Pref shares
By Natalie Harrison and Danielle Robinson
NEW YORK, Sept 27 (IFR) - General Motors garnered both praise and a whopping order book this week when it came to market with its first unsecured bond offering since coming out of bankruptcy.
The blockbuster USD4.5bn deal was another step in the iconic US carmaker's slow march back to investment-grade status, and won kudos from analysts as a sound and savvy move for its balance sheet.
No doubt helped by the red-hot climate - September has been the biggest issuance month ever in the US high-grade market - GM was said to have attracted more than USD25bn in orders. About a third of that came from investors who normally only buy investment grade bonds.
The junk-rated Ba1/BB+/BB+ trade, expected to also end up in high-grade territory, was split equally between five-year, 10-year and 30-year bonds.
Initial price thoughts were heard Monday at 4% area, 5.25% area and 6.75-7%. But with USD16bn orders already placed by early Tuesday morning, price talk was slashed to 3.5%, 4.875% and 6.25% - and this is where the deal priced.
Books were scaled back to USD20bn at the final price terms.
The proceeds will mainly be used to repurchase 120 million of Series A Preferred shares held by the United Auto Workers healthcare trust for USD3.2bn. Those shares cost GM an annual payment of USD620m because on the hefty 9% dividend.
The 7% notes held by the Canadian Auto Workers Health Care Trust will also be repaid in full, according to CreditSights.
ICE-BREAKER
CreditSights analysts described the trade as "sound and financially prudent", predicting that the company will tackle the remaining 156 million Series A Preferred shares in the future.
One DCM banker said it was positive to see GM back in the market, where conditions are at their most buoyant in months follow the Fed's shock decision to hold off on tapering for now.
"The GM deal makes a lot of sense from a corporate finance perspective. It's especially good to see the company back in the market, as they have been so averse to issuing debt because that caused its troubles in the first place," said the banker.
"They are clearly taking advantage of market conditions."
Noting the improving credit quality at GM, CreditSights analysts also highlighted positive news for the company's equity outlook.
"The sell-down of the equity stake by the US Treasury, which has picked up pace in recent months and now stands just above 7%, are all distinct positives for the GM story," the analysts said.
"With this 'ice-breaker' now done on GM's unsecured bond issuance, the credit trends remain favorable barring a very aggressive and negative balance sheet move."
RISING STAR
GM got an extra boost after Moody's lifted its corporate rating out of junk territory - its first investment-grade rating since 2005.
"GM has been on a steadily improving operational and financial trajectory since it emerged from bankruptcy," said Bruce Clark, senior vice president with Moody's.
"The disciplines the company has embraced, combined with the strength of its US product portfolio and a healthy domestic market, will enable it to stay on that path."
Both Standard & Poor's and Fitch rate GM at BB+, or one notch shy of investment grade, with a positive outlook.
Fitch said GM's leverage will rise only slightly above the June 30 2013 level of 0.5x after the debt sale, and that leverage is likely to remain below 1x over the medium term.
One leveraged finance banker said the Moody's one notch upgrade to Baa3 from Ba1 would undoubtedly improve the market's view of the credit, and widen the net of potential investors.
"If Moody's rating action is a signal that GM may be on the same path as Ford, this could prove a lucrative buy for investors," one syndicate official said.
The funding advantages of becoming investment grade were demonstrated later in the week, when Ford Motor Credit , rated Baa3/BBB-, came to market with a USD1bn five year, priced to yield 2.883%, versus the 3.5% GM paid on its five-year tranche.
All three tranches traded up between half a point to a point-and-a-half from par pricing, but eased back to reoffer level as market conditions softened.
Citi, Bank of America Merrill Lynch, JP Morgan and Morgan Stanley led the deal.