Corrected final paragraph to note that Countrywide bonds maturing in 2016 yield more than comparable Bank of America bonds. An earlier version of this story incorrectly stated that the Bank of America bonds offered a higher yield.



) --

Bank of America

would be responsible for bonds issued by Countrywide Financial even if the giant bank chose to put the mortgage subsidiary into bankruptcy, making the debt a smarter investment than risky BofA shares, according to an analyst report published Friday.

Bonds issued by Countrywide prior to its acquisition by Bank of America in 2008 have sold off -- and prices have dropped -- relative to bonds issued by Bank of America. R.W. Pressprich analyst Brian Charles argues in a report that the selloff is due to concerns Bank of America will put Countrywide into bankruptcy to avoid untold billions in litigation exposure related to mortgages sold during the housing bubble.

However, the drop in prices on the debt is creating a buying opportunity since the chance of a loss on principal is remote. "We note that if

Bank of America were to put Countrywide into bankruptcy to contain its mortgage litigation exposure, legacy Countrywide public debt would not be affected," Charles writes, adding that the debt "remains an obligation" of Bank of America.

An e-mail message to Bank of America spokesmen was not immediately returned.

Charles recommends several debt and preferred stock issues by both Bank of America and Countrywide, even though he downgraded Bank of America common stock to "neutral" from "speculative buy" on Friday, arguing,

TheStreet Recommends

as other analysts have done

, that

litigation risk

is too difficult to quantify, and could drag on for years.

Nonetheless, Charles told


in a phone interview that he feels comfortable recommending Bank of America and Countrywide debt because he believes it is "a remote scenario" losses on litigation could force a restructuring of the parent company.

"On a risk/reward basis, the debt is oversold," he said.

Bonds issued by Bank of America maturing Aug. 15, 2016 yield 6.03%, compared to a 6.98% yield for bonds issued by Countrywide that mature three months earlier, according to Charles' report, published early Friday. Both issues are rated A3 by Moody's Investors Service and A- by Standard & Poor's. Similarly, trust preferred securities issued by Bank of America maturing August 15, 2032 yield 7.72%, while a comparable issue from Countrywide maturing April 1, 2033 yields 8.71%.


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.