Embattled mortgage lender Countrywide Financial Corp. in a regulatory filing conceded that if its credit ratings fall below investment grade, its access to the public corporate-debt markets "could be severely limited."
Additionally, ratings agencies cutting its debt to junk status would lead to higher rates when the company renegotiates its financing arrangements beyond current maturity dates.
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The three ratings agencies -- Moody's, Standard & Poor's and Fitch -- currently have investment-grade ratings on Countrywide, but they all have affixed the ratings with some form of negative outlook, Countrywide said. S&P and Fitch both rate Countrywide's long-term debt BBB+, while Moody's has a Baa3 rating. The cutoff for investment grade is considered a long-term rating of BBB- , or Baa3 from Moody's. Bonds rated below BBB- are considered junk.
As of Sept. 30, up to $5.5 billion of Countrywide's custodial deposit accounts on deposit with the bank could be affected if the credit rating fell into junk status, according to the filing.
When Countrywide made their latest earnings announcement, they said their problems for the quarter were the low point and the company would turn around. This despite the fact they announced 10,000+ in layoffs, a big increase in their loan loss reserves and a big writedown of their mortgage portfolio. The market cheered that announcement. The sheer gall it took for Countrywide to say their problems were the trough is simply amazing. What's more amazing is people bought it, especially in light of the current credit market environment.
Now we know the ratings agencies (whose own credibility is severely damaged right now) have Countrywide on negative credit watch. Raise your hand if you think Countrywide has seen the low point in their respective business cycle. For those of you who raised your hand, I've got some great investment opportunities in Florida real estate....
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