GM Convertibles Flying Off the Lot

General Motors convertible securities offering will ride $200 million higher thanks to investor interest.

General Motors has announced that it has increased the size of its convertible securities offering to $1.3 billion, from $1.1 billion, due to a favorable response from the market.

GM added that it has granted the underwriters an overallotment option to purchase up to $195 million of additional notes. Net proceeds to GM will be about $1.2 billion.

The notes mature on June 1, 2009. The automaker elaborated that interest will be paid semiannually, on June 1 and December 1, at a rate of 1.50 percent per year.

The notes will be convertible based on an initial conversion rate of about 0.68 shares of common stock per $25 principal amount of notes, equivalent to an initial conversion price of approximately $36.57 per share. This represents a premium of about 20 percent based on the May 24 closing price of $30.47.

In connection with the offering, GM entered into capped call transactions with affiliates of the underwriters. The transactions are expected to reduce the potential dilution upon conversion of the notes and yield the equivalent of a $45.71 conversion price, or 50 percent higher than at market close on May 24, the company added.

The joint-book running managers for the offering are Citigroup, Deutsche Bank Securities, and Goldman Sachs.

“GM is prudently raising cash in front of industry softness and 2007–11 UAW contract negotiations. Increasing cash would be consistent with Ford and GMs’ activity prior to 2003 negotiations,” Citigroup analyst Jon V. Rogers wrote in a note to clients, according to the Associated Press.

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