Aug. 16 (Bloomberg) -- Countrywide Financial Corp., the biggest U.S. mortgage lender, borrowed the entire $11.5 billion available in bank credit lines as the global financial crisis curbed access to short-term financing.

Countrywide turned to the emergency loan, which it said was provided by a group of 40 banks, a day after Merrill Lynch & Co. raised the prospect of bankruptcy for the Calabasas, California- based lender. Australia's Rams Home Loans Group Ltd. and Canada's Coventree Inc. also sought emergency funding today.

``When a company draws on its bank lines, it just basically gives off the impression that it has run out of options,'' said Christopher Wolfe, managing director at Fitch Ratings, which today dropped Countrywide to BBB+, its third-lowest investment- grade rating. ``Typically these bank lines are there but not really meant to be used.''

The deepening mortgage crisis also claimed First Magnus Financial Corp., the second-largest privately held U.S. home lender. First Magnus said today it would stop funding new home loans, joining more than 70 companies that have had to close or put themselves up for sale since the beginning of last year. New Century Financial Corp. and American Home Mortgage Investment Corp. filed for bankruptcy earlier this year.

Countrywide, which has lost more than half its value on the New York Stock Exchange this year, fell for a sixth consecutive day. As of 4:02 p.m. the shares had dropped 11 percent to $18.95.

Supplementing Cash

Countrywide's loan is part of an ``assortment of financing alternatives'' put in place to supplement cash in turbulent markets, the company said in a statement. Countrywide doesn't have to pay any of the money back for at least a year, and about two-thirds of it doesn't come due for four years or longer.

The credit lines came with restrictions, Countrywide disclosed in a regulatory filing late today. The company has to maintain a minimum net worth of $7.68 billion and is barred from certain mergers and asset sales. Should Countrywide go into default on the loans, it could be forced to stop paying dividends, according to the filing.

The two largest of the credit lines, for $6.44 billion and $2.64 billion, were arranged by JPMorgan Chase & Co. in May.

Starting today, Countrywide said 90 percent of new loans will meet standards that qualify them for purchase by the government-sponsored agencies Fannie Mae and Freddie Mac or they'll be held by the company's bank. These ``conforming'' loans are less profitable than the mortgages that last year accounted for 68 percent of the company's lending.

Demand Disrupted

``Demand for non-agency mortgage-backed securities has been disrupted in recent weeks,'' David Sambol, president and chief operating officer, said in the statement. ``Liquidity for the mortgage industry has also become constrained.''

Countrywide plans to complete by the end of September a plan to make almost all mortgages through Countrywide Bank, which has access to cheaper funding through the Federal Home Loan Bank System.

The company appears to be readying itself for a ``nuclear winter'' in the U.S. credit markets, Piper Jaffray Cos. analyst Robert Napoli wrote today in a report. ``With the combination of the additional capital and the focus on government-sponsored entities and bank-eligible loans, Countrywide is likely to have positioned itself to withstand a prolonged credit crunch.''

The biggest holders of the stock include units of AXA SA, Barclays Plc, Legg Mason Inc. and TCW Group Inc., according to regulatory filings.

Ross's Endorsement

``Countrywide is a good company,'' said Wilbur Ross, the billionaire investor and chairman of WL Ross & Co. in New York who provided $50 million of debtor-in-possession financing to bankrupt American Home Mortgage Investment Corp. ``There is value there once you sort everything out.''

Cofounder and Chief Executive Officer Angelo Mozilo, 68, had 9.21 million Countrywide shares and exercisable options as of April 4, according to the company's annual shareholder letter sent earlier this year. Based on those figures, his stake has declined in value by about $200 million this year.

Credit-default swaps on Countrywide dropped to 480 basis points from 600 yesterday, though earlier they soared to 1,025 basis points, according to broker Phoenix Partners Group in New York. That means the annual cost to protect $10 million in Countrywide bonds from default for five years fell to $480,000.

Credit Rating Cut

Moody's Investors Service cut Countrywide's credit rating to the lowest investment-grade level, Baa3, citing the ``significant'' decline in the company's access to debt markets. The rating company said it may lower Countrywide's debt to junk status ``should its available liquidity come under further stress.''

The Australian lender Rams Home Loans said today in a statement that it failed to refinance A$6.17 billion ($5 billion) of short-term U.S. loans because of a ``lack of market liquidity.'' Coventree, Canada's biggest non-bank issuer of asset-backed commercial paper, said it's seeking an additional C$790 million ($729 million) of emergency funds after failing to sell any notes yesterday.

To contact the reporter on this story: Bradley Keoun in New York at bkeoun@bloomberg.net.

Last Updated: August 16, 2007 18:34 EDT