Subprime City Confidential: Aug. 16, 2007


When we last left Countrywide (CFC) , the No. 1 mortgage lender had been beset by liquidity rumors, with its stock price plunging Wednesday as a result. And a day later? Well, the company raised eyebrows and blood pressure levels on the Street when it announced that it was drawing down its entire $11.5 billion short-term credit facility to bolster its liquidity. The company also announced plans to shift more of its lending operation to its in-house bank. The shares tumbled more than 20% on the news as the move raised fresh questions about the lender's viability, though they recovered somewhat by the close of trading Thursday to finish 11% lower. Next, the rating agencies got in on the act, with Moody's, S&P, and Fitch lowering credit ratings on Countrywide Financial. S&P lowered its rating on Countrywide Financial to A- "to reflect the incremental liquidity and earnings stress" on the company. But while S&P and the other ratings shops still consider Countrywide an investment-grade credit, others on the Street aren't so sure. At one point in trading Thursday, the credit derivatives market reflected a 25% chance of default on Countrywide's debt over the next 12 months, reports Action Economics./a>

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