Fitch may cut or raise Countrywide's rating

NEW YORK, May 5 (Reuters) - Fitch Ratings on Monday said it may cut or raise Countrywide Financial's CFC.N ratings depending on how Bank of America treats its debt after a proposed $4 billion acquisition of the largest U.S. mortgage lender.

Fitch said it is reviewing Countrywide's lowest investment grade rating of "BBB-minus" after Bank of America (BAC.N) in a regulatory filing last week made no assurances that it would redeem, assume or guarantee the mortgage lender's debt after the acquisition.

"While Fitch continues to believe that BAC's acquisition of CFC will likely close, today's rating action considers uncertainty over the transaction's final structure," the rating agency said.

Fitch said it may cut Countrywide debt into junk territory if Bank of America does not fully support the mortgage lender's debt after the acquisition.

Countrywide's ratings may also be equalized with Bank of America's "AA" rating, the third highest investment grade, depending on the deal's structure, Fitch added.

Fitch changed Countrywide to "rating watch evolving" from "rating watch positive," where it was placed after its acquisition by Bank of America was announced in January.

Standard & Poor's on Friday cut Countrywide to junk status following Bank of America's filing, while Moody's Investors Service said it expected the bank to complete the deal and support Countrywide's debt.

Moody's report helped Countrywide's credit spreads tighten on Monday but shares fell 12 percent to $5.26 on the New York stock exchange after a Friedman, Billings, Ramsey analyst said Bank of America Corp (BAC.N) is likely to renegotiate its deal to buy Countrywide or completely walk away from it.

Fitch said it continues to believe that the transaction will be completed, but it said Bank of America has been "unusually silent" regarding the ultimate structure of the deal.

The rating agency said without Bank of America's support, Countrywide would slide into junk territory because of further deterioration in the residential mortgage sector.

"Given CFC's operating difficulties and the stressed environment, CFC's ratings would likely be downgraded absent the capital and liquidity support already provided by BAC, and more likely still if the merger is not consumed," Fitch said. (Reporting by Anastasija Johnson and Dena Aubin, Editing by Chizu Nomiyama)