Countrywide Financial Corp., the largest U.S. mortgage lender, said on Thursday it drew down an entire $11.5 billion bank credit line as a global credit crisis limits its access to short-term cash.

The drawdown should help Countrywide conduct daily operations but shows how liquidity strains have spread beyond subprime lenders to companies that mainly offer higher-quality loans, driving several into bankruptcy.

All three major U.S. credit rating agencies downgraded Countrywide debt, and at least two analysts have raised the specter of bankruptcy for the lender.

The fact Countrywide did this shows how disrupted capital markets have become, said Christopher Wolfe, managing director at Fitch Ratings, which cut Countrywide's debt ratings. It may force Countrywide to reduce lending and migrate toward safer loans, and affect earnings from (mortgage) originations.

Countrywide shares fell as much 29.6 percent before paring losses amid a rally among financial services stocks, including mortgage rivals that might benefit if Countrywide struggles. The shares closed down $2.34, or 11 percent, at $18.95, their lowest level since September 2003.

Representatives of Countrywide did not return several requests for comment.

TIGHTER STANDARDS

Countrywide said it has tightened its lending standards so most new home loans will qualify for purchase and guarantee by mortgage companies Fannie Mae and Freddie Mac. Such loans are considered among the least likely to default.

When you're in a pit, the first thing to do is to stop digging, said James Ellman, a portfolio manager at Seacliff Capital, a San Francisco hedge fund.

The lender also plans to originate nearly all home loans in its Countrywide Bank unit by September 30. This will let it tap new sources of financing such as deposits and federal home loan banks to finance operations, and rely less on capital markets.

Demand for non-agency mortgage-backed securities has been disrupted, Chief Operating Officer David Sambol said in a statement. Liquidity for the mortgage industry has also become constrained.

Countrywide said it can keep the $11.5 billion for at least a year, and 70 percent of it for more than four years, before having to pay it back. The credit facility from 40 banks was originally intended to back up other debt. Countrywide reported $186.5 billion of liquidity as of June 30.

Shares rose for Countrywide's largest mortgage rivals, gaining 5.5 percent at Wells Fargo & Co, 4.3 percent at Citigroup Inc, 5.7 percent at JPMorgan Chase & Co, 3.4 percent at Bank of America Corp and 9.2 percent at Washington Mutual Inc.

BANKRUPTCY CAN HAPPEN -- ANALYST

Earlier this week, Countrywide said mortgage delinquencies had reached their highest level in more than five years.

Dozens of smaller mortgage lenders have quit the industry this year. Privately held First Magnus Financial Corp., the 16th-largest lender according to newsletter Inside Mortgage Finance, on Thursday said it stopped funding home loans.

The big question is, can Countrywide survive, wrote Paul Miller, a Friedman, Billings, Ramsey & Co. analyst.

There is a scenario in which the current liquidity crises lasts for longer than three months and Countrywide is forced into bankruptcy; it will be ugly, but it can happen! Miller added. He rates Countrywide underperform.

Merrill Lynch & Co. analyst Kenneth Bruce on Wednesday also said bankruptcy is possible if the market loses confidence in Countrywide's ability to operate properly.

RATING DOWNGRADES

Moody's Investors Service downgraded Countrywide's senior debt three notches to Baa3, its lowest investment grade, and said a cut to junk status was possible. Fitch cut the debt to BBB-plus and Standard & Poor's cut it to A-minus, the agencies' third- and fourth-lowest investment grades.

Difficult financial markets create potential challenges to Countrywide's franchise and leadership in the mortgage banking business, and further dislocations in the U.S. single-family mortgage markets, Moody's analyst Philip Kibel wrote.

Countrywide Chief Executive Angelo Mozilo has said his company not only expected to survive the industry shakeout, but would add market share as weaker rivals fell away.

The company's 5.8 percent notes maturing in 2012 fell about 7 cents on the dollar to 83 cents, yielding 10.39 percent, according to Trace, the Financial Industry Regulatory Authority's bond pricing service.

The perceived risk of owning Countrywide bonds declined late Thursday. Credit default swaps fell about 30 basis points (0.3 percentage point) to 470 basis points, or $470,000 per year for five years to insure $10 million of debt, traders said.

(Additional reporting by Karen Brettell, Faris Khan, Joseph Giannone and Dan Wilchins in New York; and Richard Barley and Natalie Harrison in London)

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