Lender’s debt gets junk rating

Credit-rating company Standard & Poor’s on Friday cut Countrywide Financial Corp.’s rating to junk status, citing new concerns that Bank of America Corp. might not take on all of the troubled mortgage lender’s debt once its proposed takeover of Countrywide closes.

The service lowered Calabasas-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 the debt.

S&P; also placed Countrywide on credit watch, which means it might 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 that there was no assurance it would assume some $38.1 billion in debt on Countrywide’s books once it acquired 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 expected would be repaid when the sale closed.

The bank expects an additional $47.68 billion in advances from the Federal Home Loan Bank system to remain outstanding until it is repaid by Countrywide Bank.

Bank of America said 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.

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 rose 40 cents, or about 1%, to $39.79 on Friday. Countrywide shares slid 7 cents, or about 1%, to $5.98.