Bank Of America May Not Back $38 B. Countrywide's Debt

Bank of America has indicated that it may not guarantee $38.1 billion in Countrywide's debt despite its determination to close the acquisition of CFC in the third quarter.

The company stated that "There is no assurance that any such debt would be redeemed, assumed, or guaranteed." According to the Bloomberg article, because of BAC's tough language, analysts are expecting the company to put the assets into another company called Red Oak Merger Corp.

Red Oak would then file for bankruptcy thus dealing a loud slap across the face to Countrywide bondholders who expected to own BAC debt after completion of the merger. When I say slap, I'm talking Joan-Collins-Dynasty-Style slap. A default on $38 billion in bonds may cause loud ripples throughout the credit markets.

It's hard to imagine problems in the credit markets resurfacing given the rabid bullishness on financials lately, but I, for one, am not ruling it out.

Source: By Mockthemarket

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