Countrywide Rating Cut to `Junk' By Standard & Poor's

By David Mildenberg
May 2 (Bloomberg) -- "Countrywide Financial Corp.'s credit rating was unexpectedly cut to junk by Standard & Poor's Corp., which cited doubt about whether Bank of America Corp. will back the home lender's debt after a pending takeover is completed.

The revision reflects ``the new level of uncertainty as to the ultimate legal status of Countrywide's creditors'' after the lender's sale to Bank of America, Standard & Poor's said in a statement today. Prices on some of Countrywide's $97.2 billion in debt tumbled and instruments that protect investors from default posted their biggest jump in almost four months...
Countrywide had run short on cash when the deal was announced and continued to lose money since then, posting an $893 million deficit for the first quarter. That means bondholders may have to go to court if Bank of America refuses to stand behind all of the lender's debt.

S&P said doubts about Countrywide's debt were raised by Bank of America in an April 30 regulatory filing that included a passage on whether the bank will honor debt issued by Countrywide. The documents said ``there is no assurance that any such debt would be redeemed, assumed or guaranteed,'' adding that no decision had been reached.

``Until this filing, it was our understanding that Bank of America would acquire all of Countrywide,'' Standard & Poor's analyst Victoria Wagner wrote today. ``This new filing raises the possibility that this assumption is no longer true.''
"