UPDATE 2-Countrywide's credit default swaps tighten 65 bps
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NEW YORK, May 29 (Reuters) - The cost of protecting Countrywide Home Loans' debt against default fell for a second day on Thursday as investors grew more confident that Bank of America will proceed with its acquisition of Countrywide Financial Corp CFC.N, market sources said.
Countrywide's credit spreads had tightened on Wednesday following news that David Sambol will retire as president of Countrywide after its acquisition by Bank of America. Bank of America had been criticized earlier for saying it would keep Sambol, seen as one of the architects of the subprime mortgage crisis. For details click on [ID:nN28438181].
Countrywide's shares rose 41 cents or about 8 percent to $5.39 on the New York Stock Exchange.
Five-year credit default swaps on Countrywide Home Loans traded on Thursday at about 230 basis points, or $230,000 a year for five years to protect $10 million of debt, down from 295 at Wednesday's close and 390 before the Sambol news, according to Phoenix Partners Group.
"Bank of America seems to be making more definitive statements as to direction, and it looks like they will honor the deal," said Scott MacDonald, head of research at Aladdin Capital in Stamford, Connecticut.
In addition, there seems to be growing sentiment that Bank of America will back Countrywide's bonds after the acquisition, MacDonald said.
"B of A is taking a stronger stance on how they're going to run Countrywide," he said. "The more they're involved, the more likelihood there is that they will do something relatively constructive in terms of what they're going to do with the debt."
Standard & Poor's on May 2 cut Countrywide Financial's rating to junk status on concerns that Bank of America may not support as much as $24 billion of the mortgage lender's debt once it completes its takeover.
Bank of America repeated in a filing on Wednesday that it is evaluating alternatives for Countrywide's debt and is giving no assurances that it would be redeemed, assumed or guaranteed. (Reporting by Dena Aubin; Editing by Leslie Adler) (dena.aubin@thomsonreuters.com; +1-646-223-6325; Reuters Messaging: dena.aubin.reuters.com@reuters.net))
