(Recasts, adds investor comments, changes dateline; previous LONDON
By Nancy Leinfuss
NEW YORK, June 24 (Reuters) - U.S. auto giant General Motors Corp. and its GMAC finance unit plan to launch a multi-tranche bond sale later this week as part of a $13 billion fund-raising effort to cover pension shortfalls and other needs, bankers and investors said on Tuesday.
Bonds of automakers have come under pressure in recent sessions as the prospect of supply has weighed on the market.
Both Moody's Investors Service and Fitch Ratings have moved GM's credit ratings into the triple-B category -- the lowest investment-grade bracket -- in recent weeks, citing concerns over the hole in the company's pension fund. Standard & Poor's downgraded GM to BBB last October.
The automaker plans to raise $10 billion to shore up its underfunded pension plan and its General Motors Acceptance Corp. is targeting $3 billion for general operating costs.
"GM is certainly trading a lot wider than it was a week ago, so it's a good opportunity if you've been underweight the name," said John Cassady, portfolio manager at Fifth Third Investment Advisors, in Grand Rapids, Michigan, who helps manage some $4 billion of fixed income assets. He plans to participate in the 10-year dollar-denominated portion of the deal.
Initial price talk suggests GM plans to sell a 10-year dollar bond priced to yield around 400 basis points over U.S. Treasuries, a 20-year dollar bond priced at 400 to 412.5 basis points over 30-year Treasuries, and a 30-year dollar bond at 412.5 to 425 basis points over Treasuries, a European investor said.
Bankers at global coordinators Morgan Stanley and Merrill Lynch were unavailable for comment.
Auto bonds started to stage a recovery Tuesday afternoon, traders said, with Volkswagen AG three to four basis points tighter from the day's lows and Ford Motor Credit Corp. debt some 10 basis points tighter.
In the United States, GMAC'S 6.875 percent notes due 2012 traded at a 3.51 percentage points more than Treasuries, about 0.05 percentage point narrower than on Monday, according to MarketAxess.
GMAC bonds were unchanged in Europe after the price guidance was released, having fallen in value in early trading.
The euro portion of GM's sale will include 10-year bonds at mid-swaps plus 350-362.5 basis points, and a 30-year bond at mid-swaps plus 387.5-400 basis points, the investor and bankers said.
The auto giant may also sell a sterling bond, with a maturities of 2012 or 2015, investors said. The multi-tranche debt portion of the sale is expected to total $6.5 billion.
"There is very little auto exposure in sterling, and the longest outstanding auto bond is a 2007 maturity, so it would be quite interesting," said Andrew Sutherland, head of credit at Standard Life Investments in Edinburgh.
GM is also expected to issue $3.5 billion via a convertible bond offering, market sources said.
Finance unit General Motors Acceptance Corp. plans to sell $3 billion in debt, split into a three-year dollar bond at 300 to 312.5 basis points over Treasuries, a two-year euro-denominated floating-rate note priced at 225 basis points over Euribor and a five-year euro bond priced to yield 312.5 basis points over swaps, the sources said.
GUIDANCE SEEN AS GENEROUS
"The guidance is generous compared to the outstanding issues, but it's a big tranche to get away," the European investor said.
Thomas Atteberry, bond fund manager at First Pacific Advisors, Inc., in Los Angeles, CA., agreed.
"I think you're getting paid to go over there and play. It seems like that's somewhat of a discount to where the world has been for that kind of paper," he said.
Investors, fed up with the poor returns amid a historically low U.S. interest rate environment, are expected to be lured by those higher yields.
"If you look at the inflow of money into bond funds, it's coming at a very healthy clip right now and that money has got to be put to work somewhere," said Atteberry.
"So to see this kind of an issue come from GM -- yes, it's large. Yes, it's going to be a big pill for the market to swallow, but right now, it looks like the market's got a big glass of water to swallow it with."
(Additional reporting by Catherine Evans in London)