Given the Bank of America investment, Fitch Ratings has revised the Rating Watch on Countrywide Financial Corp. and related subsidiaries to Evolving from Negative, signifying that Fitch may upgrade, downgrade or affirm CFC's ratings once additional information has been gathered.The Rating Watch Evolving reflects the $2 billion strategic equity investment from Bank of America in non-voting convertible preferred stock of CFC. The preferred securities, which yield 7.25%, can be converted into common stock at $18 per share, subject to restrictions on trading for 18 months. BoA will receive no Board representation as a result of its investment. Fitch's downgrade of CFC and subsidiary ratings on Aug. 16, 2007 was prompted by the company's announcement that it had drawn down its $11.5 billion unsecured bank facility, a clear sign that liquidity pressure was mounting. While the decision in and of itself raises concerns, Fitch believes the added liquidity provides relief in the short term. Fitch also believes that CFC's current liquidity issues were not caused by a fundamental breakdown of the company's financing plan or strategy, but more so with investor's extreme risk aversion that has triggered unprecedented disruption in the capital markets. Even if the environment normalizes in relative short order, Fitch believes that residual effects caused by the company's temporary liquidity stress will have a significant impact on origination volume and operating performance.
