Egan-Jones Rating Company

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Overview

Egan-Jones Rating Company is designated as an Nationally Recognized Statistical Rating Organization (NRSRO) by the Securities and Exchange Commission.

It was founded in 1995 and actively rates the credit worthiness of approximately 2000+ high yield and high grade U.S. corporate debt issuers.

Egan-Jones is wholly supported by investors to minimize the potential for conflicts of interest in accessing credit quality. On Dec. 21, 2007 the SEC granted Egan-Jones NRSRO status, thus including them in a group of eight recognized NRSRO's.

The effectiveness of Egan-Jones' investor supported credit ratings has been measured by third parties including Richard Johnson of the Kansas City Federal Reserve, the Stanford University Business School and the University of Michigan's Business School (Studies

Sean Egan, principal of Egan-Jones Rating, appeared before Congress on October 22, 2008 and explained how issuers of complex securities "shopped" for ratings which resulted in a race to the bottom in terms of credit transparency. Rather than "beat up Moody's and S&P for behavior" they'd been financially motivated to pursue, the government needs to support a new business model paid for by investors, not issuers, to support the funding ecosystem which has so severely broken down.

Rating system explanation

  • AAA -- An obligation rated 'AAA' has the highest rating assigned by Egan-Jones's, The obligor's capacity to meet its financial commitment on the obligation is extremely strong.
  • AA -- An obligation rated 'AA' differs from the highest-rated obligations only to a small degree. The obligor's capacity to meet its fmancial commitment on the obligation is very strong.
  • A -- An obligation rated 'A' is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor's capacity to meet its financial commitment on the obligation is still strong.
  • BBB -- An obligation rated 'BBB' exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its fmancial commitment on the obligation.
  • BB -- An obligation rated 'BB' is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions which could lead to the obligor's inadequate capacity to meet its financial commitment on the obligation.
  • B -- An obligation rated 'B' is more vulnerable to nonpayment than obligations rated 'BB', but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor's capacity or willingness to meet its financial commitment on the obligation.
  • CCC -- An obligation rated 'ccc' is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, fmancial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
  • CC -- An obligation rated 'CC' is currently highly vulnerable to nonpayment.
  • C -- A subordinated debt or preferred stock obligation rated 'C' is currently highly vulnerable to nonpayment. The 'C' rating may be used to cover a situation where a bankruptcy petition has been filed or similar action taken, but payments on this obligation are being continued. A "c" will also be assigned to a preferred stock issue in arrears on dividends or sinking fund payments, but that is currently paying.
  • D -- An obligation rated 'D' is in payment default. The 'D' rating category is used when payments on an obligation are not made on the date due even if the applicable grace period has not expired, unless Egan-Jones's believes that such payments will be made during such grace period. The 'D' rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
Plus (+) or minus (-)

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.

NRSRO designation

Criticisms

Potential investor manipulation.[1]

Competitors

References

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