Countrywide offers new convertibles in exchange for LYONs due 2031

New York, Aug. 20 - Countrywide Financial Corp. said it has begun an exchange offer for all $675 million principal amount at maturity of its Liquid Yield Option Notes due 2031.

The Calabasas, Calif., mortgage banking and financial services company is offering new convertibles with the same principal amount but convertible into a mixture of cash and stock and with dividend protection.

Countrywide will also make a cash payment of $2.50 per $1,000 principal amount for tendered LYONs.

Like the existing securities, the new convertibles will carry a zero coupon, a 1% yield to maturity, mature on Feb. 8, 2031 and be callable from Feb. 8, 2006 onwards.

The new convertibles will convert into a combination of cash and stock, the cash component being set as the lesser of the accreted principal amount and the value of the stock that would be issued on conversion. The remainder will be paid in stock. The conversion ratio is currently 46.2820 after giving effect to the Aug. 30 dividend on the common stock.

The existing LYONs convert into stock only.

The new securities will have dividend protection through an adjustment to the conversion rate for quarterly stock dividends of more than 10 cents per share. The LYONs have no adjustment to the conversion rate for dividend payments.

The new convertibles will have a contingent interest provision. If triggered, the payment will equal the greater of 0.125% of their average market price and 20 cents multiplied by the conversion ratio.

The LYONs also have a contingent interest provision with payment equal to the greater of 0.125% of their average market price and cash dividends paid on the common stock multiplied by the conversion ratio.

On exercise of the put option by holders, Countrywide must pay cash for the new securities. For the LYONs, Countrywide can pay cash, stock or a combination.

The exchange will expire 20 business days from Aug. 20.

Lehman Brothers is dealer manager (800 438-3242 or call collect 212 526-7343) and D.F. King & Co. Inc. is information agent (800 758-5378, banks and brokers call 212 269-5550).

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