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By Jonathan Stempel
NEW YORK, Aug 21 (Reuters) - General Motors Corp.'s finance arm plans on Thursday to sell $2 billion of bonds, joining a flood of companies looking to lock in cheap financing costs as investors scrounge for alternatives to low-yielding U.S. Treasuries.
General Motors Acceptance Corp., one of the largest U.S. corporate bond issuers, plans to sell $1 billion each of five- and 10-year notes, and use proceeds for general corporate purposes, GM spokesman Jerry Dubrowski said.
The sale by GMAC, whose parent is based in Detroit, is expected on Thursday, people familiar with the sale said.
A sale would follow a six-session corporate bond rally. More than $8 billion of sales have taken place this week, the busiest since at least May, though well off the $13.8 billion January-to-June weekly sales average, according to Thomson Financial Securities Data.
The last half of August is traditionally one of the year's slowest periods for corporate bonds because many investors and bankers are on vacation. Though spreads, the extra yield that companies must offer to compensate investors for credit risk, are near record highs, companies are finding now an attractive time to issue because Treasury yields are near record lows.
Michael Dineen, who helps invest $5 billion for MONY Life Insurance Co. in New York, said that relative to Treasuries, "companies have been offering generous yields" on new issues. "The 10-year Treasury yielded under 4 percent last week, and from a cost of funding standpoint GMAC and other companies can offer attractive yields."
Traders said GMAC's 6.15 percent notes maturing in 2007 and 7 percent notes maturing in 2012 yield about 2.5 percentage points more than similar maturity Treasuries. That would suggest yields of below 6 percent on the new five-year notes and below 7 percent on the new 10-year notes, because new bond issues often yield 0.05 to 0.2 percentage points more than older issues with similar maturities.
Dineen owns GMAC bonds and said he was not planning to buy more. "GMAC may have to be generous with spreads," he said. "It's not just the size, but its frequency of issuance, because the company has significant funding needs."
Moody's Investors Service rates GMAC's existing senior unsecured debt "A2," its sixth highest investment grade. Standard & Poor's Ratings Services rates it "BBB-plus," two notches lower.
Banc of America Securities LLC, J.P. Morgan, Salomon Smith Barney and UBS Warburg LLC are arranging the sale.