S&P cuts rating on Countrywide
LOS ANGELES—Credit-rating agency Standard & Poor's on Friday cut Countrywide Financial Corp.'s rating to junk status, citing new concerns that Bank of America Corp. may not take on all of the troubled mortgage lender's debt once its proposed takeover of Countrywide closes.
The service lowered Calabasas, Calif.-based Countrywide's rating to "BB/B," and slashed its rating on Countrywide's banking arm, Countrywide Bank FSB, to "BBB/A-3." The new ratings are below investment grade, which means many institutional investors will not be allowed to own its debt.
S&P also placed Countrywide on credit watch, which means it may lower or raise the company's ratings again in the near future.
The rating cuts came a day after Bank of America said in a regulatory filing there is no assurance it would redeem, assume or guarantee some $38.1 billion in debt on Countrywide's books once it acquires the lender.
As of Dec. 31, Countrywide had outstanding debt of about $97.2 billion, according to the filing with the Securities and Exchange Commission.
The total included $11.48 billion in revolving credit facilities, which Bank of America said it expects will be repaid when the acquisition closes.
The bank added that it expects another $47.68 billion in advances from the Federal Home Loan Bank system will remain outstanding until it is repaid by Countrywide Bank.
Bank of America noted it was still evaluating alternatives for how to deal with the remaining $38 billion in Countrywide debt, which includes bonds and other debt instruments. Among the options on the table: allowing the debt to remain as outstanding obligations of Countrywide.
That creates an uncertain legal status for Countrywide debt holders, S&P said.
"The filing indicates that it is now possible that (Bank of America) would not support some of Countrywide's debt," S&P said.
Among the debt instruments the rating agency suggested might not be supported by Bank of America were about $17 billion of medium-term notes, $4 billion of convertible debt, $2.2 billion in junior subordinated debt, and $1 billion of subordinated debt already outstanding.
In January, Countrywide agreed to sell itself to Charlotte, N.C.-based Bank of America for about $4 billion in stock.
The deal is expected to close during the third quarter.
Earlier this week, Countrywide reported that it lost $893 million in the first quarter and took $3.05 billion in credit-related charges.
Bank of America shares shares rose 40 cents, or about 1 percent, to $39.79 in trading Friday. Countrywide shares slid 7 cents, or about 1 percent, to $5.98.
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On the Net:
Bank of America Corp.: http://www.bankofamerica.com
Countrywide Financial: http://www.countrywide.com
