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By Catherine Evans and Richard Barley
LONDON, June 26 (Reuters) - General Motors , the world's largest automaker, sold euro and sterling bonds on Thursday as part of a record $16.8 billion multi-currency debt sale to help plug a hole in its pension fund.
The deal, which includes euro, sterling and dollar bonds and securities convertible into GM shares, is expected to be the largest single corporate fundraising in the bond market. Investor bids for the offering were said on Wednesday to have topped $30 billion.
The bonds are being sold by General Motors Corp itself, its financing unit General Motors Acceptance Corp, and another unit, GM Nova Scotia. Investment banks Merrill Lynch and Morgan Stanley are global coordinators for the deal.
Earlier on Thursday, GM and GMAC also launched $6 billion of bonds in four tranches, to be priced later. About $3.5 billion in convertible securities is also expected as part of the debt sale.
The order books for the various euro tranches of the deal were between 2.5 and four times oversubscribed, said an official at one of the lead managers. He declined to give an absolute level of orders.
"The deal has gone extremely well," he said. "We're trading around three basis points tighter on most of the tranches."
A key message from the way the deal was sliced up is that Europe is now a crucial part of a company's fundraising strategy. "Europe is clearly competing with the dollar market," the official said, with the euro tranches being equivalent to $6.3 billion.
LOW INTEREST RATE ENVIRONMENT
GM said last Friday it would sell about $13 billion of bonds -- subsequently increased to reflect investor demand -- to help shore up its U.S. pension plan, which was underfunded by $19.3 billion at the end of 2002. Its pension deficit is the largest of any U.S. company.
The firm said it aimed to take advantage of low interest rates, allowing it to free up cash and enhance its financial flexibility.
U.S. interest rates are at their lowest level since 1958 following a 25 basis point cut, to one percent, by the Federal Reserve on Wednesday.
Worries about GM's pension deficit prompted recent credit rating cuts by Moody's Investors Service and Fitch Ratings. Moody's rates the company Baa1, three notches above "junk" grade, while Fitch assigns an equivalent BBB+ rating. Standard & Poor's rates the firm BBB, one notch lower.
Moody's and S&P affirmed their credit ratings for GM and GMAC after the bond sale was announced, although both retained a negative outlook. Credit rating agencies increasingly treat unfunded pension liabilities as debt.
The indicated yield premium on all the bonds was scaled back during pre-marketing, reflecting bumper demand as investors scramble for yield.
On Thursday, General Motors Corp sold:
-- One billion euros of 7.25 percent bonds due July 3, 2013, priced at 99.447 to give a spread of 340 basis points over swaps, or 352.5 basis points over German Bunds.
-- 1.5 billion euros of 8.375 percent bonds due July 5, 2033, priced at 98.25 to give a spread of 380 basis points over swaps, or 385 basis points over Bunds.
GMAC sold:
-- 1.5 billion euros of floating-rate notes due July 5, 2005, paying a coupon of 175 basis points over Euribor and priced at 99.515 to give a spread of 200 basis points over Euribor
-- 1.5 billion euros of six percent bonds due July 3, 2008, priced at 99.6 to give a spread of 300 basis points over swaps, or 313 basis points over German government debt.
GM Nova Scotia Finance Co sold:
-- 350 million pounds of 8.375 percent bonds due December 7, 2015, priced at 99.506, to give a spread of 375 basis points over swaps, or 396.5 basis points over British Gilts
-- 250 million pounds of 8.875 bonds due July 10, 2023, priced at 99.917 to give a spread of 400 basis points over swaps, or 423.6 basis points over Gilts.