There is no plausible manner for Bank of America Corp. (BAC) to disclaim the Countrywide Financial Corp. (CFC) bonds, according to analysts from Covenant Review.

"The assumption of debt is generally an irrevocable choice," Convenant Review analysts said. "We do not see any plausible way for BAC to argue that CFC are not BAC obligations just like regular BAC bonds."

Analysts were referring to the November 7, 2008 asset transfers from CFC to BAC entities. BAC filed an 8-K with the Securities and Exchange Commission. The filing said that CFC and its unit Countrywide Home Loans transferred substantially all of their assets and operations to BAC. Through this transfer, BAC assumed all debt securities and related guarantees of Countrywide worth approximately $16.6 billion in aggregate.

Usually a law suit against a particular corporate entity does not really expose a parent corporate entity to legal liability, Covenant Review analysts stated. However, the asset transfers that happened in November 2008 "complicated the situation."

They explained that there are legal theories that CFC creditors can pursue to clawback value from BAC if CFC were to file for bankruptcy.  If CFC has transferred significantly all of its assets to BAC, then CFC creditors can say that BAC is the actual "successor-in-interest" to CFC, and therefore liable for debts and claims against CFC.

They said that if BAC is determined to be the "successor-in-interest" to CFC, or there was a fraudulent transfer, then BAC may be exposed to having to pay settlements and judgments. In this way, CFC's litigation and other claims against CFC might "infact" BAC, but that is hard to handicap at this juncture considering the time for analysis and facts available.

But, analysts reminded investors that BAC used a wrong interpretaion of the CFC indentures in an attempt to avoid a put right for some CFC convertible bonds in 2008 and bondholders sued  after proving why BAC was wrong.

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