12 month Countrywide bonds 25 - 35% yield a good deal?

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August 16, 2007, 11:00 am



Countrywide Bonds Offer Juicy Yield for the Hearty

Posted by Dana Cimilluca

http://blogs.wsj.com/deals/2007/08/16/countrywide-bonds-offer-juicy-yield-for-the-hearty/

The vultures are circling Countrywide.

Bonds of the nation’s largest home-mortgage lender are selling about as well as heaters in a desert early this morning. Some of the bonds that come due in the next 12 months were trading at prices that offered hearty investors a 25% to 35% yield, one junk bond manager told us.

Countrywide stock, meanwhile, is down 15% at $18.20 after the company said before the market opened today that it would draw down on an $11.5 billion back up credit facility as the markets for all types of risky loans spiral downward. That brings the stock’s plunge since Jan. 3 to 58%.

Bond yields that juicy usually are reserved for companies at serious risk of going belly up. Countrywide, meanwhile, still has investment-grade ratings, even after at least two rating providers — Moody’s and Fitch — downgraded it today.

Citigroup said in a research note distributed this morning that recent weakness in the stock is "significantly overdone." The company’s second-quarter results last month, when it reported net income of $485 million, "in a challenging mortgage climate wasn’t too bad," Citi analyst Bradley Ball said. He noted that the company has $40 billion of funding available that could last it three to six months. Indeed, a longer-term Countrywide bond, its 5.8% notes maturing five years from now, yield just 9.60%, Reuters reports.

Not everyone, of course, is so sanguine. Other Wall Street firms such as Merrill Lynch are questioning Countrywide’s viability, as this Reuters story today points out.



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With Serena Ng


So IHB is this a good deal?

 
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