Egan-Jones Ratings Company
| Company type | Private |
|---|---|
| Industry | Credit rating agency |
| Founded | 1995 |
| Founder | Sean Egan |
| Headquarters | Haverford, Pennsylvania , United States |
Area served | United States, European Union, United Kingdom |
Key people | Sean Egan (CEO) |
| Products | Credit ratings, ESG scores, Proxy advisory services |
Egan-Jones Ratings Company is a credit rating agency based in the United States and holds the designation of a nationally recognized statistical rating organization (NRSRO). Established in 1995, its mission is to provide prompt and precise credit evaluations. The firm specializes in analyzing the credit reliability of issuers seeking funding within private credit markets, covering a diverse range of asset categories.
The company's clientele typically comprises banks, asset management firms, insurance providers, and various financial entities. Operating from its headquarters in Haverford, Pennsylvania, Egan-Jones sets itself apart by relying predominantly on investor funding, which helps minimize potential conflicts of interest in its credit evaluations. Additionally, the company extends its offerings to include ESG assessments and proxy advisory solutions, broadening its suite of financial services.
History
Sean Egan launched Red Flag Research in 1992 during his tenure at Chemical Bank. He later recruited analyst Bruce Jones from Moody's and rebranded the enterprise as Egan-Jones. The organization delivered its inaugural credit rating in December 1995.
On December 21, 2007, Egan-Jones attained recognition as an NRSRO, becoming the ninth entity to receive this status from the SEC. In 2014, it obtained authorization from the ESMA to operate within the European Union. Later, in 2021, it was registered with the UK’s Financial Conduct Authority as an accredited credit rating agency. Furthermore, it is acknowledged by the National Association of Insurance Commissioners as an approved credit rating provider.
Independent research conducted by institutions such as the Kansas City Federal Reserve, Stanford Graduate School of Business, and the University of Michigan's Ross School of Business has confirmed the reliability of Egan-Jones’ investor-funded credit ratings.
Sean Egan, serving as CEO and founder, presented testimony before Congress in 2008 promoting a novel business framework where investors—not issuers—compensate credit rating agencies to enhance transparency and diminish conflicts of interest.
In July 2011, Egan-Jones became the pioneer NRSRO to lower the United States' sovereign credit rating from AAA to AA+. Additional downgrades occurred in April and September 2012 due to concerns about escalating debt burdens and monetary policy effects.
The firm was also among the first to downgrade prominent corporations such as WorldCom and Enron, while accurately identifying financial instability at institutions including Lehman Brothers, MBIA, IndyMac, and New Century. These actions highlight its strength in evaluating credit risk effectively.
Sean Egan has earned recognition as an influential business leader for his visionary guidance, notably being named by Fortune Magazine as the foremost individual who anticipated the 2008 financial crisis.
Private placement credit ratings
Egan-Jones functions as a credit rating agency issuing evaluations for private debt instruments across multiple industries. These include asset-backed financings, corporate bonds, financings for financial institutions, funds, infrastructure projects, middle-market loans, project finance arrangements, leases, and real estate transactions.
Unsolicited Credit Ratings
Egan-Jones delivers unsolicited credit ratings through a subscription model, providing regular updates on the credit quality of publicly traded companies. To date, the firm has issued more than 20,000 unsolicited ratings, furnishing investors with prompt evaluations of credit risk.
ESG Scores
Egan-Jones produces environmental, social and corporate governance (ESG) assessments designed to analyze factors affecting clients' sustainability initiatives. Within the banking industry, these ESG scores correlate with credit ratings, influencing the capital structure and overall financial health of banks.
Proxy Advisory
Since 2002, Egan-Jones has offered independent proxy advisory services tailored for institutional investors including insurance firms, registered investment advisors, pension funds, Taft-Hartley funds, and family offices. The company reviews all equity holdings of clients and bases its voting recommendations on guidelines selected by the clients themselves.
Ratings Scale
Egan-Jones characterizes its ratings as forward-looking judgments regarding the creditworthiness of issuers or their obligations. These evaluations estimate potential losses by examining an issuer’s capacity and willingness to fulfill payment obligations such as principal, interest, dividends, or distributions.
Long-Term Ratings Scale
The long-term rating spectrum used by Egan-Jones spans from AAA to CCC, with plus (+) or minus (−) modifiers indicating relative positioning within each category.
| Global Long-Term Rating Scale | |
|---|---|
| Investment Grade | |
| Rating | Definition |
| AAA | Exceptional credit quality with minimal vulnerability to adverse credit conditions. |
| AA | Very strong credit quality with very limited sensitivity. |
| A | Strong credit quality exhibiting low sensitivity. |
| BBB | Adequate credit quality with moderate sensitivity. |
| Speculative Grade | |
| BB | Marginal credit quality with elevated sensitivity. |
| B | Substantial credit risk accompanied by higher sensitivity. |
| CCC | Very weak credit quality with significant sensitivity. |
| CC | Extremely weak credit quality but some recovery potential. |
| C | Extremely weak credit quality with minimal recovery prospects. |
| D | Creditworthiness cannot be determined; uncertain recovery likelihood. |
Short-term ratings scale
Short-term credit ratings pertain to obligations with maturities of one year or less, such as commercial paper. These ratings evaluate credit quality, including any "put" options embedded within long-term debt instruments.
| Global Short-Term Rating Scale | |
|---|---|
| Investment grade | |
| Rating | Description |
| A-1 | Superior short-term credit strength. |
| A-2 | Strong short-term credit profile. |
| A-3 | Adequate short-term creditworthiness. |
| Speculative grade | |
| B | Weak short-term credit status. |
| C | Very weak short-term credit quality. |
| D | Absent or no measurable short-term creditworthiness. |
Allegations
In April 2012, the Securities and Exchange Commission accused Sean Egan and Egan-Jones of submitting false information in their application to be recognized as a Nationally Recognized Statistical Rating Organization (NRSRO). Additional charges included conflicts of interest, inadequate record maintenance, and misstatements about clients’ holdings in rated securities. The SEC claimed that Egan-Jones permitted analysts to assign ratings to securities they personally owned and failed to maintain proper documentation of their rating procedures.
Response from Egan-Jones
| The information we provided was accurate to the best of our knowledge. If required to do so again today, I would state precisely the same. |
| —Sean Egan, CEO, during a CNBC interview |
Sean Egan reiterated the firm’s dedication to delivering prompt and independent credit evaluations despite the SEC’s allegations. The company’s legal counsel, Alan Futerfas, condemned the SEC for exhibiting bias against independent rating firms and defended the firm’s sincere efforts to comply with intricate regulatory requirements. He emphasized that the SEC’s order did not dispute the quality or reliability of Egan-Jones’ ratings and pointed out the contrast in regulatory scrutiny compared to major rating agencies involved in the 2008 financial crisis.
Settlement
On January 22, 2013, the SEC revealed that Egan-Jones consented to resolve allegations involving intentional and significant inaccuracies and omissions in its registration as a NRSRO for asset-backed and government securities. Under the terms of the agreement, the company was prohibited from issuing ratings for these types of securities as an NRSRO for a minimum duration of 18 months, which affected its operations within those market sectors.
External links
- Press Release responding to SEC charges , April 19, 2012
- Articles with short description
- 1995 establishments in Pennsylvania
- Credit rating agencies
- American companies established in 1995
- Companies based in Delaware County, Pennsylvania
- Financial services companies established in 1995
- Financial services companies of the United States
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