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Found a very interesting read here. According to the article, even if BAC puts the mortgage subsidiary into bankruptcy, it is still responsible for the bonds. Obviously much due diligence is required here.


http://www.thestreet.com/story/11251349/1/countrywide-bonds-...
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Hi ytm!

I've checked with a few people more knowledgeable than myself ( not hard to find ) and they came to the same conclusion ( at least so far as CFC's preferreds go ).

Cheers!
Murph
Home Fool
( long CFCpB )
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I had considered shorting those bonds so this is a very useful warning to receive.

Does anyone know *any* Countrywide bond that is *not* protected by the BOFA parent?

Can someone point to any disclosure that proves the posted article's claims regarding Countrywide debt? I would like to read the original disclosure documents concerning the nature of this obligation by BOFA parent to cover debt of the subsidiary.
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Hi persistentone!

While I can't give you specifics, I do see in my written investment thesis for CFCpB ( bought it from $17 all the way down to the single digits ), that BAC directly backed $16.6B of Countrywide debt ( including CFCpB ) in November of 2008 in exchange for some Countrywide assets.

Perhaps that date will aid you in your hunt for specifics.

Cheers!
Murph
Home Fool
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ytm, persistentone, TMFMurph,

TMFMurph wrote, While I can't give you specifics, I do see in my written investment thesis for CFCpB ( bought it from $17 all the way down to the single digits ), that BAC directly backed $16.6B of Countrywide debt ( including CFCpB ) in November of 2008 in exchange for some Countrywide assets.

Perhaps that date will aid you in your hunt for specifics.


CFC-B has clearly been converted. See the SEC filings: http://www.sec.gov/cgi-bin/browse-edgar?company=&CIK=000...

According to those filings, the securities underlying CFC-B was replaced with Bank of America issues. As I recall, the trust guarantees were also amended to replace the Countrywide guarantee with a Bank of America guarantee.

CFC-A and CFC-B are not required to post regular SEC filings, so the related filings are the top 6 listings. If you review the listings, you will find that Bank of America filed replacements or guarantees for 5 issues. The issues who's guarantees were replaced are known at Countrywide Capital V thru IX. CFC-B is Capital Trust V, but I believe the other capital issues are bond offerings. Follow the links and you can find their prospectus and check it for yourselves.

Interestingly CFC-A has similar filings, but the filings do not correctly reference the older CFC-A, which was issued by Countrywide Capital IV.

Disclosure: I own CFC-B and some CPP. I liquidated my CFC-A holdings over a year ago.

- Joel
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Thanks for going the extra mile, Joel!

Now, if the panic over BAC remains/increases ( especially if they use the "nuclear option", aka bankrupting the CountryWide division to avoid mortgage put backs/lawsuits), we'll have a chance for a potentially profitable binary event:

Buy ( more ) CFCpB at distressed prices...and do quite well....unless BAC itself goes under. ;-)

Cheers!
Murph
Home Fool
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TMFMurph,

You wrote, Thanks for going the extra mile, Joel!

No problem. I did my DD on this back in 2008. Looking it up again wasn't that hard. I even posted about it on the Yahoo Finance CFCpB board back then. Shoot, I believe I even speculated about the structure of the merger and the fact that without an explicit guarantee, BAC could raid the CFC subsidiary and then bankrupt it if it became a liability.

Also, Now, if the panic over BAC remains/increases ( especially if they use the "nuclear option", aka bankrupting the CountryWide division to avoid mortgage put backs/lawsuits), we'll have a chance for a potentially profitable binary event:

Buy ( more ) CFCpB at distressed prices...and do quite well....unless BAC itself goes under. ;-)


Honestly, BAC has gotten me worried in recent months - not just the CFC unit. I really wish I hadn't been quite so greedy. I had been planning to unload some of my holdings when CFC-B got up to 24+. It got there, but I rationalized hanging on to an out-sized position because "there wasn't anything better." Now the shares are back to their distressed pricing levels.

In fact in my greed, I purchased a few hundred shares of CPP over the past 2 years, knowing full well that they had not been explicitly guaranteed. Now I'm contemplating unloading some of those shares and taking a small capital loss on the position. (I'm also holding a position in BML-Q; but it's much smaller and was originally a Merrill issue.)

BTW, I personally don't think it would be worth it to BAC to put the CountryWide unit into bankruptcy (CFC is a good scapegoat on paper, until you realize that BAC and Merrill also issued and underwrote a lot of these bad legacy loans, so ditching CFC won't magically make all the lawsuits go away); but it's not like I have a crystal ball. If the litigation liabilities get that bad, BAC will probably be down to a choice between bankrupting CFC or having itself placed into receivership by its regulator.

Oh. And I'm also not entirely happy with some of the cost-cutting moves they're making. But then as an engineer and I've never been sold on the idea that out-sourcing is a panacea for a company's financial ailments. (Sure, it works for some things; but it's lousy for others.)

What do I think needs to be done? More automation. More controls. More centralized risk management. More centralized, advanced planning and forecasting. A focus on efficient processes. A focus on delivering value to its customers at a reasonable cost. And less of the fly-by-the-seat-of-your-pants we-have-to-do-this-because-we-have-to-do-something-different mentality. New, more enlightened leadership that understands where the risks and opportunities really are and not just people making moves to help pacify their boss or Congress.

Do I think any of that will happen? No. Will the current management sink the ship? Like I said, my crystal ball isn't that clear.

So in the end, I'll probably lighten up some (or just buy puts on BAC common as a hedge) and ride it out for a while longer. Add more? Probably not. Its not that I don't think CFC-B is a good buy - it's just that I'm already too exposed to BAC at this point and BAC is simply too risky to hold too much of it. Would I recommend CFC-B? Sure - if you don't have any, it's on sale now and would be a good addition to a portfolio in moderation.

- Joel
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Hi again, Joel!

Sound thinking in your post!

My remarks about doing real well on adding more CFCpB if BAC were to bankrupt the CW unit count on the price of CFCpB dropping way below current levels. How far? I don't know, but my guess is a short-term drop to prices in the $12-15 range as folks panic, without doing the research that you have. During the 2008/2009 debacle, I picked up some in the $6 range, and while I don't believe that price will repeat, I never underestimate the power of the press to panic retail investors...and sometimes even the "pros". ;-)

Of course, the desire to add will be tempered by the then current situation at BAC itself--how likely are they to go under/perform strange and wondrous financial manipulations, etc.

As to selling CFCpB, like you, I got a bit greedy. I had limit orders in to sell about 25% of my position at $25.25....it got close, $25.18, I believe...and my rationale for setting the limit so high was the same as yours: no better alternative in the space.

I guess "pigs git et". ;-)

Thanks much for sharing your thoughts on this holding...valuable info!

Cheers!
Murph
Home Fool
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