"Subprime crisis" reprint? Over 3,000 U.S. private credit transactions completed by a small rating agency with a team of about 20 people
In the private credit market, the small rating agency Egan-Jones completed over 3,000 transaction ratings in 2024 with a team of only 20 people, becoming an active player. Its lenient ratings have sparked resistance from institutions such as BlackRock and Apollo, and it has been accused of having a systematically inflated rating system. Egan-Jones' rapid rating process is often accompanied by brief assessments, leading to some optimistic ratings being inaccurate, which has facilitated the inflow of high-risk assets into insurance funds
During the 2008 financial crisis, rating agencies became infamous for boosting toxic subprime mortgages. Now, another "rating game" is unfolding in the private credit market, and this time the rules may be even more obscure.
According to a deep report by Bloomberg on June 2, the small rating agency Egan-Jones completed over 3,000 private credit transaction ratings in 2024 with a team of only 20 people, becoming the most active player in the field. Its lenient ratings are driving nearly a trillion dollars in insurance funds into high-risk assets, prompting a collective boycott from institutions like BlackRock and Apollo, while an internal report from the National Association of Insurance Commissioners (NAIC) pointed directly to its ratings being systematically inflated.
Rating Fast-Track Factory: "Efficiency Miracle" Hides Risks
A quaint four-bedroom colonial-style house on Haverford Station Road in the suburbs of Philadelphia shows no signs of being the headquarters of the most active rating provider in the U.S. private credit market. In 2024, this rating company named Egan-Jones provided credit ratings for over 3,000 investments with just about 20 analysts—a number that raises concerns among financial experts.
"Just because it has the 'investment grade' label doesn't mean it truly is investment grade," said Samuel Bonsall, an accounting professor at Pennsylvania State University.
The report states that compared to the months-long rating process required by large agencies like S&P and Moody's, Egan-Jones typically provides a preliminary assessment within 24 hours—sometimes even for free—and gives a formal rating in less than five days. However, this efficiency often comes with abbreviated assessments, as Egan-Jones usually provides only a one-page rationale for its ratings, while traditional agencies often deliver detailed reports of over 20 pages.
Some optimistic ratings from Egan-Jones have proven to be extremely inaccurate. Last year, a company began defaulting on interest payments just six weeks after receiving a BBB rating from Egan-Jones.
However, these ratings have helped Wall Street transfer large amounts of complex debt onto the balance sheets of life insurance companies managing the retirement savings of millions of policyholders. According to JP Morgan, the total exposure of U.S. insurance companies to private credit investments is rapidly approaching $1 trillion.
Inflated Ratings, Wall Street's Collective Boycott
Although Egan-Jones claims to be the largest rating company in the private credit market, Wall Street has begun to express doubts about it.
Insiders revealed that BlackRock, Carlyle Group, and other investment giants have explicitly excluded the company from their list of acceptable credit rating agencies for certain capital raises in recent years. Apollo Global Management also does not use Egan-Jones to rate any private credit assets held in its insurance business At the same time, a report that was suddenly withdrawn by the National Association of Insurance Commissioners (NAIC) showed that small agencies like Egan-Jones rated private equity investments an average of three levels higher than the internal valuation office of the association. This discrepancy could lead to financial risks being systematically underestimated.
In 2024, two former employees sued Egan and his wife Wenrong Hu (then Chief Operating Officer) for violating federal securities laws. The couple was accused of pressuring analysts to change initial ratings, incentivizing potential clients to pay for final ratings, and subsequently modifying ratings to create the illusion of consistency with other agencies.
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