Countrywide cut by Merrill; bankruptcy raised

The Wall Street Journal reports:

Shares of Countrywide Financial Corp., the largest U.S. home lender, plunged Wdnesday amid escalating concerns over its ability to raise cash in the commercial paper market where companies secure short-term funding.

The stock was off 15% at $20.87 on the New York Stock Exchange. Meanwhile, the perceived risk of owning Countrywide bonds also rose Wednesday.

Spokespeople at the Cacabasas, Calif., lender didn't return requests seeking comment.

"I don't think Countrywide can access the unsecured commercial paper market," said David Sylvester, an executive vice president in San Francisco-based Wells Capital Management, which manages $90 billion in money-market assets.

Commercial paper is short-term debt, with maturities, on average, of about 30 days. Usually a cheaper alternative to bank loans, commercial paper is the domain of companies with stellar credit ratings and is cushioned by their bank credit lines.

A drying up of an important source of financing would complicate Countrywide's lending operations, although as an investment-grade-rated company it still has access to other funding sources. It also erodes investor confidence in the lender's creditworthiness, which was reflected Wednesday not only in the stock price, but also in the derivatives market.

Tighter credit is here.