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By Dena Aubin
NEW YORK, June 25 (Reuters) - Strong investor demand allowed General Motors Corp. to trim yields on a $16.5 billion bond sale, lowering borrowing costs on the largest ever combined corporate bond and convertible securities sale by a U.S. company.
Investor bids for the offering totaled at least $30 billion, investors and analysts said on Wednesday.
The multi-currency bond sale was increased in size from an expected $13 billion because of demand for the corporate paper, expected to pay as much as four full percentage points more than comparable U.S. Treasuries.
The world's largest automaker will use a large portion of the proceeds to help shore up underfunded pension obligations.
A $5 billion dollar-denominated portion from GM drew about $21 billion of bids, an analyst looking at the deal said.
"There's clearly a yield grab going on," said Mitchell Stapley, chief fixed-income officer for Fifth Third Investment Advisors, "That explains the dynamic pretty well."
The bond sale also offered fresh evidence of corporate America's growing access to capital following 13 interest rate easings from the Federal Reserve.
"The return of the auto jumbo deal is surely proof that, as a disease, lack of access to capital has been eradicated," fixed-income research service CreditSights said in a report this week. "Unfortunately, the patient (the economy) seems to be doing no better now than it was when the disease was rampant."
Concerns over GM's pension gap have pressured the company's ratings, which were moved into the triple-B category, the lowest investment-grade bracket, by both Moody's Investors Service and Fitch Ratings in recent weeks.
GM is expected to sell $1 billion of 10-year notes yielding 375 to 380 basis points more than Treasuries, versus originally expected yields of about 400 basis points more than Treasuries. A basis point is one-hundredth of a percentage point.
It is also expected to sell $1 billion of 20-year bonds yielding 383 to 408 basis points more than Treasuries, down from 400 to 412.5 basis points. Finally, it is expected to sell $3 billion of 30-year bonds yielding 400 to 405 basis points more than Treasuries, down from 412.5 to 425 basis points.
Citigroup, Merrill Lynch & Co. and Morgan Stanley are managing the dollar tranches of the sale and were unavailable for comment.
GM is also expected to sell a one billion euro 10-year bond at around 340 basis points over mid-swaps, compared with the 350 to 362.5 basis points originally expected, and a 1.5 billion euro 30-year bond at 380 basis points over mid-swaps, down from 387.5 to 400 basis points indicated earlier, analysts said.
GM's financing unit General Motors Acceptance Corp. plans to sell $1 billion of three-year fixed-rate debt yielding 290 to 295 basis points more than Treasuries, down from the 300 to 312.5 basis points initially expected.
GMAC is also expected to sell a 1.5 billion euro two-year floating-rate note at Libor plus around 200 basis points, 25 basis points less than originally expected and a 1.5 billion euro five-year bond at around 300 basis points over mid-swaps, 12.5 basis points less, analysts said.
GM's offering is also expected to include about $3.5 billion in convertible securities.
Moody's Investors Service rates GM's debt "Baa1," its third-lowest investment-grade, while S&P rates it roughly one notch lower at "BBB." (Additional reporting by Kirsten Donovan and Richard Barley)