(Adds sterling bond)
By Richard Barley and Catherine Evans
LONDON, June 26 (Reuters) - General Motors Corp will borrow at least $16.5 billion later on Thursday to plug a hole in its pension fund, in what is expected to be the largest single corporate fundraising via the bond market.
A source close to the deal said GM, the world's number one automaker, will price its record multi-currency bond sale later on Thursday, with pricing on the euro currency tranches expected early in the European afternoon.
"The deal will all price today," the source said.
"Given the logistics, the euros will price first and then the dollars will follow."
GM plans to raise around $16.5 billion via a variety of instruments, including straight and convertible bonds denominated in dollars, euros and sterling. Around $4.5 billion worth of the funding will be raised via financing arm General Motors Acceptance Corp (GMAC).
Merrill Lynch and Morgan Stanley are acting as global co-ordinators for the deal, demand for which was said on Wednesday to have topped $30 billion.
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.
PENSION WORRIES PROMPT CREDIT RATING CUTS
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.
GM's bond sale on Thursday is expected to comprise:
-- $1 billion of 10-year notes yielding 375 to 380 basis points more than Treasuries
-- $1 billion of 20-year bonds yielding 383 to 408 basis points more than Treasuries
-- $3 billion of 30-year bonds yielding 400 to 405 basis points more than Treasuries
-- one billion euros of 10-year bonds priced to yield around 340 basis points over mid-swaps
-- 1.5 billion euros of 30-year bonds priced to yield 380 basis points over mid-swaps
GMAC is expected to sell:
-- $1 billion of three-year bonds yielding 290 to 295 basis points more than Treasuries
-- 1.5 billion euros of two-year floating-rate notes priced to yield around 200 basis points over Euribor
-- 1.5 billion euros of five-year bonds priced to yield around 300 basis points over mid-swaps.
Another unit, GM Nova Scotia, is expected to sell
-- 350 million sterling of 12-year bonds, priced to yield between 387.5 and 400 basis points over mid-swaps.
GM's offering is also expected to include about $3.5 billion in convertible securities.
The indicated yield premium on all the bonds has been scaled back during pre-marketing, reflecting bumper demand as investors scramble for yield.