Egan-Jones Rated Crown Holdings “Investment-Grade”

Not every credit rating agency is created equally. One is under fire for a plethora of reasons, including a bad call on a real estate developer.

Last year, Egan-Jones Ratings, based out of Pennsylvania, graded more than 3,000 investors in the private credit sector with a team of only 20 analysts, Bloomberg reported.

One of its most infamous calls came when it gave Moshe Silber’s Crown Holdings an investment-grade BBB, often interpreted as a safe grade. A mere six weeks later, the company defaulted on its debt.

A few months ago, a federal judge in New Jersey sentenced Moshe Silber to 30 months in prison for his involvement in a mortgage fraud scandal. He’s also been banned from the industry.

Some of Egan-Jones’ questionable credit calls are beginning to concern Wall Street’s ranks as it develops a reputation of being an easier, faster and cheaper service than its rivals.

BlackRock and the Carlyle Group are among the investment firms that now allegedly exclude Egan-Jones from their own capital raises. Apollo Global Management reportedly doesn’t use Egan-Jones to rate any private credit assets within its insurance business.

Blue Owl Capital, HPS Investment Partners and Morgan Stanley’s investment management arm list Egan-Jones as the only official ratings company banned from validly passing judgment on their deals, pre the publication.

A report released by the National Association of Insurance Commissioners found small companies like Egan-Jones rated private investments three notches higher on average than NAIC’s in-house valuators. The report was quickly retracted due to backlash from insurers and a few ratings firms.

The ratings doled out by companies such as Egan-Jones affect how debt ends up with life insurance companies, which have been increasingly seeking out new high-yield investment opportunities.

The exposure of U.S. insurers to private credit investments is nearing $1 trillion, according to JPMorgan Chase.

While the likes of Fitch, Moody’s and S&P Global get paid by those who sell investments, Egan-Jones is generally paid by the people who buy them, ostensibly limiting conflicts of interest. That didn’t stop the SEC from accusing founder Sean Egan of conflict of interest violations in 2022, which ultimately led to a hefty fine and an individual ban from taking part in the company’s grading.

“Egan-Jones has a history of early and accurate calls,” the company said in a statement; Egan rose to prominence as an early warner of Enron.

— Holden Walter-Warner