Countrywide Financial debt cut to junk -- What?

Countywide Financial (NYSE: CFC) reported a loss of $893 million for the first quarter. BloggingStocks' Peter Cohan wrote that "Fortunately, Countrywide has an exit strategy. In January, Countrywide agreed to sell itself to Bank of America (NYSE: BAC) for about $4 billion in stock. The question is whether Bank of America will pull out of the deal now that it sees the rising costs it will incur if it moves forward. Since Countrywide trades 15% below that takeout price, the market has its doubts."

But now that may be in further doubt. In a surprise move, Standard & Poor's downgraded Countrywide's debt to junk status, citing concern that Bank of America might not back the company's debt once the buyout is completed.

But some analysts say that the fact that Bank of America hasn't stood up and said it will back the debt raises questions about whether the deal can be completed at all. Friedman Billings Ramsey & Co. analyst Paul Miller said that "A lot of things have changed in the last 30 days. Home prices are still falling very rapidly and Countrywide's credit costs are getting worse from what we hear."

Shares of Countrywide fell on the initial news of the downgrade but rebounded to close down just 1.16% on the day. Still, the wide premium to the proposed takeover offer reflects a great deal of skepticism about the deal's prospects.