General Motors $3.5 billion convertible talked to yield 6% to 6.5%, up 30% to 35%

By Sara Rosenberg

New York, June 20 - General Motors Corp. announced it will offer $3.5 billion 30-year convertible senior debentures with talk putting the yield at 6% to 6.5% with an initial conversion premium of 30% to 35%.

Merrill Lynch & Co., Morgan Stanley and Citigroup are bookrunners for the registered deal, which is scheduled to price Thursday after market close.

There is a 15% greenshoe available.

The notes are non-callable for seven years and there are puts in years 15, 20 and 25.

There is a contingent conversion feature with 120% hurdle rate and a 95% parity trigger.

There is also dividend protection so that if the stock dividend changes the conversion ratio gets adjusted.

Simultaneously, GM will offer fixed-income notes, bringing the overall offering of debt securities to approximately $10 billion, doubling the company's original balance-sheet-strengthening target for 2003 and increasing near-term liquidity to more than $30 billion.

Substantially all of the proceeds will be used over time to partially fund U.S. pension funds and other retiree benefit obligations. The Detroit automotive company expects to make significant cash contributions to these funds by late 2003.

In addition, General Motors Acceptance Corp. is seeking to raise about $3 billion as part of its ongoing funding plan for 2003, intended to be used for general corporate purposes and to satisfy funding of ongoing operations.

"The general cost of borrowing in U.S. markets is at historic lows and we are acting quickly to take advantage of the favorable capital markets environment," said John Devine, vice chairman and chief financial officer, in a news release. "These offerings give GM the opportunity to strengthen its balance sheet while freeing up cash and improving financial flexibility.

"One important purpose of these offerings is that they will allow General Motors to use cost-efficient, long-term debt to provide near-term funding of some of its pension and retiree benefit obligations," Devine added.

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