When Bank of America announced plans in January to purchase Countrywide by the third quarter—given all the subprime mortgage debt held by Countrywide, bloggers wondered if BAC was (a) crazy, (b) stupid, or (c) had a trick up its sleeve. In rapidly evolving events, Countrywide’s bond rating was cut to junk today following disclosure from BAC that: “there is no assurance that any such debt would be redeemed, assumed or guaranteed.”
In other words, Bank of America would cherrypick Countrywide’s assets, while sending its debt over to a shell corporation called Red Oak Merger Corp., who may default as needed. If BAC gets away with this, who would buy corporate bonds anymore—if in the event of a takeover assets are accumulated by the new company and the bonds are defaulted?
Like Bear Stearns, everything was going just swell for Countrywide—until one news release later it wasn’t.
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