Some months ago, we had mentioned that Bank of America was keen to avoid taking on Countrywide’s liabilities (who wouldn’t be?). The possibility that the giant bank might not provide a guarantee for Countrywide’s debt came to the fore again. Without BofA backing, the Countrywide paper is a pretty dodgy proposition. From Bloomberg:
Bank of America Corp., the second- biggest U.S. bank, said it may not guarantee $38.1 billion of Countrywide Financial Corp.’s debt after taking over the mortgage lender, fueling speculation that Countrywide’s bondholders face renewed risk of default.
“There is no assurance that any such debt would be redeemed, assumed or guaranteed,” the Charlotte, North Carolina- based bank said in an April 30 regulatory filing, adding that no decision has been reached….
Countrywide’s $1 billion of 6.25 percent notes maturing in 2016 traded at 90.25 cents on the dollar yesterday with a yield of about 7.9 percent, according to Bloomberg data. The debt traded as low as 46 cents in January, with a yield of 20 percent, just before Bank of America announced the purchase.
“I’d be quite concerned if I was a bondholder if the intent of Bank of America is as it reads in the filing,” said Gary Austin, founder of PDR Advisors LLC, an investment management firm in Charlotte. His firm, which manages about $600 million, doesn’t hold Countrywide debt…
“This confirms how tenuous this transaction is,” said Christopher Whalen, managing director at Institutional Risk Analytics, a banking research firm, from Torrance, California….
The wording in the bank’s filing is new, Victoria Wagner, a credit analyst at Standard & Poor’s Corp., said in an interview yesterday.
“If they let the debt fail, it would have implications for their other obligations,” she said. “They are still going to wholly own Countrywide.”.