Credit downgrade would have dire effects, Countrywide says

Countrywide Financial Corp., the largest U.S. mortgage lender, warned Friday that if its credit rating dropped below its current lowest grade the company’s access to the corporate debt market would be “severely” limited, which could have repercussions for its business.

A below-investment-grade rating also would mean that the Calabasas-based lender would face more restrictive terms and higher rates when it refinanced its existing borrowings, the company said in a Securities and Exchange Commission filing.

“While we retain our investment-grade ratings, all three rating agencies have placed our ratings on some form of negative outlook,” the company said.

Additionally, a below-investment-grade rating could affect the company’s bank subsidiary’s ability to capture or hold deposits in custodial accounts.

“As of Sept. 30, 2007, up to $5.5 billion of our custodial deposits may be subject to placement with another bank if our credit ratings were reduced below investment grade,” Countrywide said in the filing.

To mitigate the risk, Countrywide said it had procured other sources of liquidity, including $9.2 billion of cash and cash equivalents in the bank at the end of the quarter.

Countrywide has faced a rising tide of delinquent loans. At the end of the third quarter, 4.9% of the sub-prime mortgages the firm serviced were pending foreclosure, up from 2.9% a year earlier, the company said.

The company’s shares rose 36 cents to $13.83 on Friday, before the filing news.