(Recasts, adds Moody's, updates stock price, details throughout)
By Michael Ellis
DETROIT, June 20 (Reuters) - General Motors Corp. said on Friday it will sell about $13 billion of bonds, one of the largest debt offerings ever, to help shore up its U.S. pension plan which ended last year underfunded by $19.3 billion.
GM shares were up nearly 2.5 percent as the world's largest automaker tackled one of its biggest challenges: a massive pension deficit, the largest of any U.S. company.
The automaker will raise about $10 billion in bonds and convertible securities, most of which will be used for its U.S. pension fund. Its finance unit General Motors Acceptance Corp. (GMAC) will raise about $3 billion in bonds to fund ongoing operations, the world's largest automaker said.
"The pension is certainly weighing on the company," said Bill Turner, an equity analyst with Banc One Investment Advisors. "It effectively buys GM a little bit of time, so the stock is reacting favorably. It's replacing three- to five-year liabilities with a longer maturity."
GM said the debt offerings, which will be sold in six tranches likely by the end of next week, will allow it to make significant cash contributions to its U.S. pension fund health care obligations by late this year.
Three successive years of stock market losses resulted in GM's pension shortfall.
The automaker spent $4.5 billion last year on health care for 1.2 million current employees and retirees and their dependents, making GM the largest private purchaser of health care in the United States.
Yield spreads on GM's bonds widened as much as 0.25 percentage point after news of the debt sale, bond traders said.
GM's pension deficit is a problem shared by much of corporate America. Investment bank UBS said on Friday that Standard & Poor's 500 companies had a combined deficit of about $239 billion and growing, an all-time high.
CREDIT RATINGS AFFIRMED, BUT NEGATIVE
Two debt rating agencies, Moody's Investors Service and Standard & Poor's, affirmed their credit ratings for GM and GMAC on Friday, though both still have a negative outlook.
Over the past week, both Moody's and Fitch Ratings have cut GM's long-term debt ratings due to the automaker's hefty pension and healthcare obligations. The ratings at both agencies remain one notch above the ratings at S&P.
GM said the debt offerings take advantage of low interest rates and allow it to free up cash and give the company more flexibility.
This year's stock market gains have boosted GM's pension plan assets by 9 percent so far this year, but that has been offset by lower interest rates.
GM's offerings are expected to include intermediate- and long-term debt in U.S. dollars and euros, as well as U.S. dollar debentures that are convertible into GM $1-2/3 par value common stock.
The debt offerings will double GM's 2003 target for strengthening its balance sheet to $20 billion from $10 billion, and increase near-term liquidity to more than $30 billion, GM said.
The automaker has been selling off noncore assets and diverting much of its cash flow to its pension and retiree healthcare plans.
GM has said it would contribute about $15 billion to the plans by 2007.
GM said this year that it would likely use a portion of the $3.8 billion proceeds from the sale of its stake in Hughes Electronics Corp. to Rupert Murdoch's News Corp. Ltd. to fund its pension plan. GM expects the deal to be completed by the end of the year.
GM's shares surged 94 cents or 2.47 percent to $39.01 in midday trade on the New York Stock Exchange, outperforming a strong market. Shares of rival Ford Motor Co. rose 32 cents or 2.84 percent to $11.60.
(Additional reporting by Dena Aubin and Susan Kelly)