Countrywide

Of course the big news today is Countrywide. You know how desperate Countrywide had to be to do this deal? It makes me shutter to think how close they had to be to collapsing last week and the beginning of this week and what it would have done to the financial markets.

This is not a good deal for Countrywide other than the fact they live for another day. BoA wins big no matter what happens. Below is some comments posted on another blog that I thought captured what a sweet deal BoA got. I disagree though that BoA intention is to drive them into the ground.

The real scam here is that nobody (other than Bloomberg!) is covering the fact that this is "death spiral" financing!

This was VERY COMMON back in the tech wreck years when companies got in trouble, and it invariably wound up with the "lender" picking over the carcass for what they wanted, having secured preferential treatment in a bankruptcy.

And for those who say that the conversion terms are fixed and thus this isn't that sort of deal - wrongo. Go read the 8-K - there's that ominous (and unspecified) ability to renegotiate the conversion price.

That's the key item, and one that NOBODY is paying attention to.

Want to know what's going on? Its simple. BAC just bought the servicing business for a NEGATIVE $800 million - all they have to do is short the common to zero (which gets them $2,800m from the high aftermarket price last night), subtract out the worthless $2b, and you have a nice negative $800m balance - plus you stand in the front of the line to pick up the assets you want.

And in the meantime, or if somehow the company pulls it off? They get a Guido-style coupon during the interim.

This is a no-lose deal for BAC, no matter what happens, but their "big score" comes if they can stick the knife in Countrywide's back.

You can bet they're gonna try.

See Calpine for how this plays out....