NEW YORK -- Generous yields on a $15.5 billion bond sale from General Motors and its finance unit have the market clamoring for nearly twice as many bonds, or about $30 billion worth, investors and analysts said Wednesday.
The multicurrency bond sale was increased in size from an originally expected $13 billion because of demand for the corporate paper, expected to pay at least 4 full percentage points more than comparable U.S. Treasuries.
The bond sale, expected to price as early as Thursday, will be the largest ever combined corporate bond and convertible securities offering by a U.S. company. GM will use proceeds to shore up underfunded pension obligations.
A $5 billion dollar-denominated portion has seen about $19 billion of bids, investors 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 dollar-denominated tranches will include $1 billion of 10-year notes, $1 billion of 20-year bonds and $3 billion of 30-year bonds, according to market sources.
Initial price guidance suggested yields of about 400 basis points -- or 4 percentage points -- over comparable U.S. Treasuries for the 10-year notes; 400 to 412.5 basis points over 30-year Treasuries for the 20-year bonds and 412.5 to 425 basis points over Treasuries for the 30-year bonds.
Concerns over the 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.
Citigroup, Merrill Lynch & Co. and Morgan Stanley are managing the dollar tranches of the sale and were unavailable for comment.
Price guidance for the euro tranches of the multicurrency bond deal have been revised because of strong demand, analysts said.
GM is expected to sell a 1 billion euro 10-year bond at around 340 basis points over mid-swaps, vs. the 350-362.5 basis points originally expected, and a 1.5 billion euro 30-year bond at 380 basis points over mid-swaps, against 387.5-400 basis points earlier, analysts said.
GM's financing unit General Motors Acceptance Corp. plans to sell $1 billion of three-year fixed-rate debt, initially expected at a yield of 300 to 312.5 basis points over Treasuries.
GMAC is also expected to sell a 1.5 billion euro two-year floating-rate note at the key London interbank offered rate 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.