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Countrywide Moves to Boost Liquidity

$11.5 billion credit line accessed

August 16, 2007


Countrywide Financial Corp., which yesterday saw its shares pounded over comments from a Merrill Lynch analyst who raised the possibility of bankruptcy for the nation's biggest mortgage lender, today disclosed it has tapped an $11.5 billion credit facility.

Merrill Lynch & Co.'s Kenneth Bruce said the possibility that the Calabasas, Calif.-based company's liquidity could dry up and force it into bankruptcy is rising, according to published reports.

Shares of Countrywide, traded under the symbol CFC, fell more that $3 yesterday to $21.29. During January, shares traded as high as $45.26.

Today the company announced it would draw on an $11.5 billion unsecured credit line provided through a syndicate of 40 of the world's biggest banks.

"Countrywide has elected to draw upon this entire facility to supplement its funding liquidity position," Countrywide Chief Operating Officer David Sambol said in the statement. "Over 70 percent of this facility has an existing term greater than four years and the remainder has a term of at least 364 days."

Sambol cited dried up demand for non-agency mortgage-backed securities and reduced funding liquidity for the industry in general.

Following Countrywide's announcement today, Moody's Investors Service reported it downgraded the senior debt ratings of Countrywide Financial Corp. and Countrywide Home Loans Inc. to Baa3 from A3.

"The downgrade of Countrywide's ratings reflects significant diminution in the company's liquidity and debt market access due to the stresses being experienced in a wide array of single-family mortgage markets -- stresses that have caused Countrywide to fully draw its committed back-up bank lines," Moody's analyst Philip Kibel said in the announcement.

The New York ratings agency said if improvements occur with the stability and breadth of company's funding sources, as well as an orderly repayment of debt, Countrywide could then see a ratings confirmation. Further liquidity stress or a deterioration in the performance of its mortgage portfolio, however, could end up forcing a downgrade.

Fitch was next, announcing it downgraded Countrywide Financial Corp.'s long-term Issuer Default Rating to BBB+, among other actions.

Countrywide said it will accelerate plans to migrate mortgage production operations into Countrywide Bank FSB. Those operations generated $462.5 billion in residential production last year -- more than any other U.S. lender.

"The company's primary strategy going forward is to fund its production through Countrywide Bank, FSB. We are already originating in excess of 70 percent of our total origination volume through the Bank, and expect to accelerate our strategy so that nearly all of our volume will be originated in our Bank by the end of September," Sambol continued.

The executive added that portfolio loans and mortgages eligible for purchase by Fannie Mae or Freddie Mac will now encompass 90 percent of Countrywide's originations.

Sam Garcia worked in mortgage lending for twenty years prior to becoming publisher of

e-mail: [email protected]

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