Downgrades Dunk Countrywide

Updated from 9:30 a.m.

The run on Countrywide (CFC) stock intensified Thursday morning after the struggling mortgage lender said it drew down its $11.5 billion unsecured bank credit line.

The move to tap the credit line spurred bond rating cuts at Moody's and Fitch. Countrywide shares were down 18% in early trading Thursday amid fears the company will be forced into bankruptcy.

The Calabasas, Calif., lender said it made the move as it "supplemented its funding liquidity position." The announcement came just a day after Merrill Lynch cut its rating on the stock to sell from buy, saying the company could run out of money with the secondary markets for mortgage securities frozen.

"In response to widely reported market conditions, Countrywide has elected to draw upon this entire facility to supplement its funding liquidity position," said operating chief David Sambol. "Over 70% of this facility has an existing term greater than four years and the remainder has a term of at least 364 days."

Christopher Wolfe, managing director at Fitch in New York, says Countrywide may have taken some of the short-term refinancing risk off the table by tapping its credit lines. But he notes that the drawdown just buys more time for the largest U.S. mortgage lender in the hopes that things turn around.

Want more? Check out TheStreet.com TV video. Greg Greenberg sits down with Mark DeCambre to discuss Countrywide's dim prospects.

"If you shut any company off from liquidity indefinitely, you're going to get the same result," says Wolfe. "The question is how long does this market illiquidity persists? That's the question of the day."