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NEW YORK (Standard & Poor's) Aug. 16, 2007--Standard & Poor's Ratings Services
said today that it affirmed its 'A/A-1' counterparty credit ratings on
Countrywide Bank fsb and Countrywide Home Loans Inc. (CHL), and lowered its
counterparty credit rating on Countrywide Financial Corp. (Countrywide) to
'A-/A-2' from 'A/A-1'. All ratings are on CreditWatch Negative.
The rating affirmations reflect the strong capital and credit profile of
Countrywide Bank and CHL's ongoing integration into the bank, which should
improve its funding and liquidity profile. The dislocation of the
mortgage-backed capital markets has accelerated the planned integration of CHL
with Countrywide Bank fsb. The growth of Countrywide Bank fsb during the past
few years has been significant, adding to Countrywide's funding and earnings
diversity. Merging CHL's operations with the bank allows for best execution of
the mortgage business from a funding and regulatory perspective, and should be
positive from a long-term perspective. This is prompting a change in
Countrywide's consolidated profile so the regulated bank will now be the
primary source of earnings and hold the majority of the consolidated assets.
"We lowered the rating on the holding company, Countrywide Financial
Corp., to reflect the incremental liquidity and earnings stress, as well as
our notching criteria and the fact that new debtholders will become
subordinate to the operating company's debtholders as the company finalizes
its restructuring phase," said Standard & Poor's credit analyst Victoria
Wagner.
Ratings for the bank and the holding company (and other related entities)
have been placed on CreditWatch Negative. This action reflects the credit
tightening in the capital markets and the recent dislocation in the ABCP
market, which have restricted Countrywide's and CHL's access to short-term
asset-backed financing, in both the ABCP markets and the 'AAA' mortgage-backed
repurchase market. The capital market appetite for mortgage-related collateral
has plummeted and the market is not discriminate in pricing mortgages and
mortgage-backed assets at this time. Positively, Countrywide and CHL are near
the completion of an orderly exit from all CP markets, which were used
extensively to fund CHL mortgage production and warehouse. Unsecured CP
outstanding is down to $2.6 billion and will be further reduced during the
next few days. CP and ABCP funding has been replaced with bank-level funding,
as 70%-80% of CHL's mortgage production is now primarily funded through bank
deposits, FHLB Advances, and other bank-level liquidity. Countrywide has also
tapped its committed bank facilities, which total $11.48 billion, at favorable
funding costs, and 70% has more than a four-year maturity. The remainder is
364-day, extendable for one year.
The duration of this stress and volatility in the capital markets, which
is restricting secondary market activity and securitization execution, is
unknown at this time. While Countrywide is facing this stressed external
environment with strong capital and risk management practices and greater
diversity of earnings, these strengths are offset by the prospect of still
lower earnings due to higher credit-related expenses in the limited subprime
mortgage exposure and negative performance trends in its prime HELOC
portfolio. The decline in national home prices is adding to the credit risk of
higher loan-to-value mortgages.
The ratings will remain on CreditWatch Negative as Countrywide
transitions its mortgage business to one of lower volume and continues moving
CHL's operations to the bank. It is transitioning to a dramatically different
business model, as the bank will now be the majority source of funding,
assets, and earnings for Countrywide. Should the liquidity challenges or the
earnings impact from this transition and from credit costs that rise higher
than we now expect accelerate, then ratings could be lowered one or two
notches. Alternatively, if the period of dislocation in the mortgage capital
markets is short, a reassessment of Countrywide's and its related entities'
capital, operating performance, and market position could lead to ratings
being affirmed and removed from CreditWatch.
Complete ratings information is available to subscribers of
RatingsDirect, the real-time Web-based source for Standard & Poor's credit
ratings, research, and risk analysis, at www.ratingsdirect.com. All ratings
affected by this rating action can be found on Standard & Poor's public Web
site at www.standardandpoors.com; select Ratings in the left navigation bar,
then Credit Ratings Search.
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