Egan-Jones Ratings Company is a nationally recognized statistical rating organization (
NRSRO
A nationally recognized statistical rating organization (NRSRO) is a credit rating agency (CRA) approved by the U.S. Securities and Exchange Commission (SEC) to provide information that financial firms must rely on for certain regulatory purpos ...
) that was founded in 1995 to provide "timely, accurate credit ratings."
Egan-Jones rates the
credit worthiness
A credit risk is risk of default on a debt that may arise from a borrower failing to make required payments. In the first resort, the risk is that of the lender and includes lost principal and interest, disruption to cash flows, and increased ...
of issuers looking to raise capital in private credit markets across a range of asset classes.
Typical issuers of rated securities include banks, asset managers, insurance companies, and other financial institutions.
Egan-Jones positions itself as unique among NRSROs for being primarily investor-supported, a structure designed to minimize the potential for
conflicts of interest
A conflict of interest (COI) is a situation in which a person or organization is involved in multiple interests, financial or otherwise, and serving one interest could involve working against another. Typically, this relates to situations i ...
in assessing credit quality. Egan-Jones also provides
ESG ESG may refer to :
Groups
* Election Support Group, an internationally sponsored organization analyzing and supporting the electoral process in Pakistan
* ES Guelma, an Algerian football club based in Guelma
* Escuela Superior de Guerra (Argenti ...
and
proxy advisory services.
History
The firm was granted
NRSRO
A nationally recognized statistical rating organization (NRSRO) is a credit rating agency (CRA) approved by the U.S. Securities and Exchange Commission (SEC) to provide information that financial firms must rely on for certain regulatory purpos ...
status on December 21, 2007, making it the ninth such organization to be recognized by the
SEC. In 2014, Egan-Jones became certified by the
EU ESMA as a credit rating agency. In 2021, Egan-Jones became listed on the
UK Financial Conduct Authority
The Financial Conduct Authority (FCA) is a financial regulation, financial regulatory body in the United Kingdom, but operates independently of the UK Government, and is financed by charging fees to members of the financial services industry. The ...
register as a certified credit rating agency. The company is recognized by the
National Association of Insurance Commissioners
The National Association of Insurance Commissioners (NAIC) is the U.S. standard-setting and regulatory support organization created and governed by the chief insurance regulators from the 50 states, the District of Columbia, and five U.S. territo ...
as a credit rating provider.
The effectiveness of Egan-Jones' investor-supported credit ratings has been measured by third parties, including Richard D. Johnson of the
Kansas City Federal Reserve
The Federal Reserve Bank of Kansas City is located in Kansas City, Missouri and covers the 10th District of the Federal Reserve, which includes Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and portions of western Missouri and northern New Mex ...
, the
Stanford University
Stanford University, officially Leland Stanford Junior University, is a private research university in Stanford, California. The campus occupies , among the largest in the United States, and enrolls over 17,000 students. Stanford is consider ...
Business School and the
University of Michigan's Business School.
Sean Egan, principal of Egan-Jones Rating, appeared before Congress on October 22, 2008 and argued that issuers of complex securities "shopped" for ratings which resulted in a
race to the bottom
Race to the bottom is a socio-economic phrase to describe either government deregulation of the business environment or reduction in corporate tax rates, in order to attract or retain usually foreign economic activity in their jurisdictions. While ...
in terms of credit transparency. Rather than "beat up
Moody's
Moody's Investors Service, often referred to as Moody's, is the bond credit rating business of Moody's Corporation, representing the company's traditional line of business and its historical name. Moody's Investors Service provides international ...
and
S&P for behavior" they'd been financially motivated to pursue, the government needs to support a new
business model
A business model describes how an organization creates, delivers, and captures value,''Business Model Generation'', Alexander Osterwalder, Yves Pigneur, Alan Smith, and 470 practitioners from 45 countries, self-published, 2010 in economic, social, ...
paid for by investors, not issuers, to support the funding ecosystem which has so severely broken down, he asserted.
Egan-Jones on July 16, 2011, became the first
NRSRO
A nationally recognized statistical rating organization (NRSRO) is a credit rating agency (CRA) approved by the U.S. Securities and Exchange Commission (SEC) to provide information that financial firms must rely on for certain regulatory purpos ...
to cut its rating on the United States from AAA to AA+.
On April 5, 2012, Egan-Jones downgraded the credit ranking of the United States for the second time (and within one year) from AA+ (Excellent) to AA (Very Good) assuming that the debt will reach $16.7 trillion by the end of 2012 while the GDP will not grow further $15.7 trillion limit and the debt to the GDP ratio will reach 112% of the national GDP which is the highest level since the WW II.
On September 14, 2012, Egan-Jones downgraded the credit rating of the United States for the third time from AA to AA-, the lowest of what is considered "high grade", as a reaction to
QE3.
Egan-Jones was also the first to downgrade
WorldCom
MCI, Inc. (subsequently Worldcom and MCI WorldCom) was a telecommunications company. For a time, it was the second largest long-distance telephone company in the United States, after AT&T. Worldcom grew largely by acquiring other telecommunic ...
and
Enron
Enron Corporation was an American energy, commodities, and services company based in Houston, Texas. It was founded by Kenneth Lay in 1985 as a merger between Lay's Houston Natural Gas and InterNorth, both relatively small regional companies. ...
.
Egan-Jones’ CEO, Sean Egan, was named by Fortune Magazine as the number one person for warning about the
financial crisis of 2007–2008
Finance is the study and discipline of money, currency and capital assets. It is related to, but not synonymous with economics, the study of production, distribution, and consumption of money, assets, goods and services (the discipline of fi ...
.
Private Placement Credit Ratings
As a
credit rating agency
A credit rating agency (CRA, also called a ratings service) is a company that assigns credit ratings, which rate a debtor's ability to pay back debt by making timely principal and interest payments and the likelihood of default. An agency may ra ...
, Egan-Jones issues credit ratings for private instruments for a variety of issuers. Transactions include asset-based financings, corporate obligations, financial institution financings, funds, infrastructure, middle-market loans, project finance, leases, and real estate.
Unsolicited Credit Ratings
Egan-Jones offers unsolicited ratings on a subscription basis to provide investors periodic updates on public companies’ credit quality. Egan-Jones has issued 20,000+ unsolicited credit ratings.
Other Services
ESG Scores
Egan-Jones offers
ESG ESG may refer to :
Groups
* Election Support Group, an internationally sponsored organization analyzing and supporting the electoral process in Pakistan
* ES Guelma, an Algerian football club based in Guelma
* Escuela Superior de Guerra (Argenti ...
reports for clients to evaluate factors that drive environmental, social, and governance practices.
Proxy Advisory Services
Since 2002, Egan-Jones has offered independent
proxy advisory services for institutional investors including insurance companies, registered investment advisors, pension funds, Taft-Hartley funds, and family offices. The firm covers all client equity holdings, and its recommendations are based on proxy voting guidelines chosen by the client.
Ratings Scale
According to Egan-Jones' methodology, "ratings are opinions that reflect the creditworthiness of an issuer, a security, or an obligation. They are opinions regarding estimated loss based on forward-looking measurements that assess an issuer’s ability and willingness to make payments on outstanding obligations (whether principal, interest, dividend, or distributions) with respect to the terms of an obligation."
Long-Term Ratings Scale
The ratings from 'AA' to 'CCC' may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
Short-Term Ratings Scale
According to Egan-Jones' methodology, short-term ratings are "assigned to those obligations considered short-term in their relevant markets. In the U.S., for example, that means
obligations with an original maturity of no more than 365 days (including commercial paper). Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to possible "put" features on long-term obligations."
2012 SEC charges
Charges
The SEC warned Egan-Jones in October 2011 of a possible enforcement action.
On April 24, 2012, the SEC charged Sean Egan with numerous offenses including: making false and misleading statements in the firm's application to become a Nationally Recognized Rating Agency, violations of conflicts-of-interest and record keeping, and falsely stating that he was unaware if his paid clients were long or short specific securities that Egan-Jones rated. The
Securities and Exchange Commission
The U.S. Securities and Exchange Commission (SEC) is an independent agency of the United States federal government, created in the aftermath of the Wall Street Crash of 1929. The primary purpose of the SEC is to enforce the law against market ...
issued charges against the company, and its founder, Sean Egan, for "material misrepresentations and omissions in the company’s July 2008 application to register as a Nationally Recognized Statistical Rating Organization (NRSRO) for issuers of asset-backed securities (ABS) and government securities" as well as "material misrepresentations in other submissions furnished to the SEC and violations of record-keeping and conflict-of-interest provisions governing NRSROs."
The SEC alleged that among other violations Egan-Jones "allowed two analysts to participate in determining the credit ratings for issuers whose securities they owned", and "also (1) failed to make or retain a record of the procedures and methodologies it used to determine credit ratings".
[https://www.sec.gov/litigation/admin/2012/34-66854.pdf ]
Egan-Jones response
Egan has stated, "Our job is to get back to work and focus on providing timely, accurate ratings and research. This will not have any effect on the firm's independence or our commitment to call credit quality as we see it, regardless of issuer."
Alan Futerfas, the firm's lawyer, has denied the allegations stating that "it’s clear the SEC has a bias against independent firms" noting that the SEC was using "hyper-technical" claims and that "these filings, new forms started in 2007, are subject to significant interpretation," and that "the firm used good faith and answered
uestions on the formsas best as it could."
Futerfas noted that "not one word in the
EC's orderquestions the quality, integrity and timeliness of the Egan-Jones ratings" and criticized the SEC for failing to take action against major NSROs which had "inflated their structured debt, rated junk AAA, and brought down the American economy, according to Congressional reports."
The SEC has not responded to Futerfas's remarks.
Settlement
On Jan. 22, 2013 the SEC announced that Egan-Jones has agreed to settle charges that they made willful and material misstatements and omissions when registering to become a NRSRO
A nationally recognized statistical rating organization (NRSRO) is a credit rating agency (CRA) approved by the U.S. Securities and Exchange Commission (SEC) to provide information that financial firms must rely on for certain regulatory purpos ...
for asset-backed and government securities. Under the terms of the agreement, the firm is barred from rating government and asset-backed securities as a NRSRO for at least 18 months.
References
External links
Official website
Press Release responding to SEC charges
April 19, 2012
{{NRSRO
Credit rating agencies
American companies established in 1995
Financial services companies established in 1995
Financial services companies of the United States