March 14 (Bloomberg) -- Bear Stearns Cos. had its credit ratings slashed after seeking emergency funding to bring it back from the edge of collapse.

Standard & Poor's lowered the securities firm's long-term counterparty rating three levels to BBB after Bear Stearns said it obtained financing from JPMorgan Chase & Co. and the New York Federal Reserve. Moody's cut the rating two steps to Baa1 and Fitch Ratings reduced the firm four levels. All three firms are reviewing their ratings for another cut.

Bear Stearns, after saying March 10 that it had ample access to capital, said in a statement today that its cash had ``significantly deteriorated'' in the past 24 hours. The New York Fed agreed to financing through JPMorgan for as long as 28 days. Bear Stearns had $18 billion in extra cash on March 11, which has since been absorbed, said S&P analyst Diane Hinton.

``In a normal market environment, we would not see this kind of movement, but we are not in a normal environment,'' Hinton, a 10-year S&P veteran, said in a telephone interview. ``One rumor gets started and people get more nervous than they already are and it becomes a feeding frenzy.''

S&P's rating is the second-lowest investment grade. Bear Stearns's short-term rating was cut to A3 from A1, New York- based S&P said in a report today.

Moody's, Fitch

Moody's had rated Bear Stearns A2 and now has it three levels above junk, or non-investment grade.

``Bear's customer franchise has been hurt by this crisis, and it will continue to erode if a long-term stabilizing solution is not quickly achieved,'' Moody's analysts Robert Young and Blaine Frantz wrote in their report.

Fitch Ratings downgraded Bear Stearns from A+.

``They can get an infusion of capital from an outside entity or they can be bought'' to restore confidence, said Andrew Harding, chief investment officer for fixed income at Allegiant Asset Management. He manages $19 billion from Cleveland.

The cost to protect Bear Stearns from default soared after the ratings were cut. Five-year contracts today traded at a record 810 basis points, according to broker Phoenix Partners Group, up from 675 basis points yesterday. They closed up 55 basis points at 730 basis points.

Credit-default swaps are financial instruments based on bonds and loans that are used to speculate on a company's ability to repay debt. They pay the buyer face value in exchange for the underlying securities or the cash equivalent should a borrower fail to adhere to its debt agreements. A decline indicates improvement in the perception of credit quality; an increase, the opposite.

A basis point on a credit-default swap contract protecting $10 million of debt from default for five years is equivalent to $1,000 a year.

`Irrelevant'

S&P plans to complete a review of Bear Stearns in the next few weeks ``as more concrete, longer term solutions to Bear's liquidity and confidence crisis are fleshed out,'' S&P's Hinton said in the report.

``The ratings could be lowered further if there is a failure to stabilize liquidity or to achieve a satisfactory longer term funding structure,'' Hinton said.

Bear Stearns can't get capital regardless of its rating, Allegiant's Harding said.

``What their rating is now is irrelevant,'' he said. ``Whether it's BB, AAA or A, I just think it's a response to the emergency funding today.''

To contact the reporters on this story: Mark Pittman in New York at mpittman@bloomberg.net; Caroline Salas in New York at csalas1@bloomberg.net

Last Updated: March 14, 2008 17:12 EDT