NEW YORK -- Massive investor demand prompted General Motors on Thursday to increase the size of a jumbo bond sale by about $4 billion, to $17 billion, making it the largest financing ever in the corporate bond market.
Raising cash to plug a hole in its pension fund, GM sold the first portion of the global debt sale, $13.55 billion of dollar, euro and sterling bonds, market sources said.
The sale will also include about $3.5 billion of securities convertible into GM shares.
Strong investor demand allowed GM to scale back the yield premiums relative to Treasuries that it paid on the offering. The dollar portions paid up to 4 percentage points more than Treasuries, about 25 basis points less than originally expected.
Absolute yields on the bonds rose, however, after benchmark Treasury yields shot higher on Wednesday following a disappointing quarter-point interest rate cut by the Federal Reserve.
Investor bids for the offering topped $30 billion, analysts and investors said, a level of demand unthinkable just seven months ago.
"This is a wonderful example of the success the Fed can point to in bringing liquidity back in the corporate bond market," said Mitchell Stapley, chief fixed-income officer at Fifth Third Investment Advisors. "It's a sign of less restrictive financial conditions in the economy."
Stapley planned to buy the GM bonds but said he was reconsidering after yields were scaled back.
The deal will top the previous record for a corporate fund-raising, a $16.4 billion bond sale by France Telecom in 2001.
The bonds are being sold by General Motors, its General Motors Acceptance Corp. finance unit and another unit, GM Nova Scotia. Investment banks Merrill Lynch and Morgan Stanley are global coordinators for the deal.
The order books for the various euro tranches of the deal were between 2.5 and four times oversubscribed, said an official at one of the lead managers. He declined to give an absolute level of orders.
Already one of the biggest corporate borrowers, GM paid up to draw buyers in a market already swimming in automakers' bonds.
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," its third-lowest investment grade, while Fitch assigns an equivalent "BBB-plus" rating. Standard & Poor's rates the firm "BBB," one notch lower.
GM's U.S. pension plan was underfunded by $19.3 billion at the end of 2002, the largest deficit of any U.S. company.