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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Giordano Bruno who wrote (367264)5/2/2008 8:11:02 AM
From: ldo79  Read Replies (1) of 436258
 
Could Countrywide creditors get stiffed?

There are more questions about Bank of America’s (BAC) planned purchase of Countrywide (CFC). A Bank of America regulatory filing this week notes that the big bank hasn’t decided whether to guarantee Countrywide debt after BofA’s $4 billion takeover of Countrywide, due to be completed later this year. A decision not to guarantee the parent company’s $38 billion in debt would be unusual and could leave Countrywide debtholders facing default, Bloomberg reports.

The wording of the filing has some observers wondering if Bank of America chief Kenneth Lewis “may be playing chicken with all of us,” reasoning that worries of a Countrywide default could push the price of its bonds lower, allowing Bank of America to buy them at a discount rather than redeeming at par. But if not, says Chris Whalen of Institutional Risk Analytics, investors could be in for quite a shock. If Bank of America were to let the Countrywide debt go into default, it could “adversely affect the entire market for bank debt. What investor in their right mind would want to hold the debt of any bank holding company were BAC to elect the nuclear option and place [a post-merger Countrywide] into a bankruptcy?” he asks.

“If bondholders get stiffed by Bank of America, it will scare the hell out of everyone,” Whalen tells Bloomberg. “This is called thinking the unthinkable.”

dailybriefing.blogs.fortune.cnn.com
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