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)--What's bad for

Bank of America


may be good for its creditors.

Despite trading higher on Wednesday, Bank of America shares have lost more than 30% in the past month, as concerns the bank may need to raise equity has sent the stock into a death spiral. The lower the stock trades, the greater the likelihood of an equity raise, which in turn makes the stock trade lower again as investors fear being diluted.

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Shares were up sharply Wednesday after they hit a new 52-week low of $6.01 Tuesday.

But while equity holders don't want their stake diluted, such a move would be a good thing for bondholders, since it would increase the amount of funds available to the bank to pay its debts. So far, however, protection against a Bank of America default in the form of credit default swaps (CDS) has been getting pricier, implying its bonds are getting cheaper.

Citing the CDS moves and the heightened possibility of a capital raise in a report published Tuesday, JPMorgan credit analyst Kabir Caprihan upgraded Bank of America to "Neutral" from "Underweight."

"The equity and credit markets are becoming increasingly clear in their message that the company needs to address the capital and mortgage issues; we think it is getting more difficult for management to ignore this sentiment. In our view, this raises the likelihood of a credit-positive development, such as the announcement of a capital raise," Caprihan writes.


Written by Dan Freed in New York


Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.