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GM shares rose nearly 1.4 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.

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 GMAC's bonds widened about 0.35 percentage point after news of the debt sale, bond traders said. Yield spreads on bonds of Ford Motor Co. (NYSE:F - News) also widened as traders speculated that GM's rival automaker could also launch new debt.

"Market conditions are relatively attractive and it certainly wouldn't hurt Ford to boost their liquidity position," Fitch Ratings (News) analyst Mark Oline told Reuters.

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 (News - Websites) 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, 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. (NYSE:GMH - News) to Rupert Murdoch's (News) News Corp. Ltd. (Australia:NCP.AX - News; NYSE:NWS - News) to fund its pension plan. GM expects the deal to be completed by the end of the year.