EA Leans on Private Rating as Bondholders Claim Default
The agency whose rating underpins EA's case, Egan-Jones Ratings Co, is certified to operate within the EU, and its grades hold significant weight in European bank capital rules.
Electronic Arts (EA) has secured an investment-grade rating from Egan-Jones for a portion of its bonds, utilizing it to argue against paying creditors 101 cents per dollar after the largest leveraged buyout on record. However, bondholders claim a default occurred due to EA missing a change-of-control payout.
SA's Public Investment Fund, Silver Lake, and Jared Kushner's Affinity Partners took EA private in August 2023 for a staggering $55 billion. Two note tranches, totaling $1.5 billion, are at the center of this dispute: one due in 2031 and another in 2051.
Fitch, Moody’s, and S&P all withdrew their investment-grade ratings for EA following the buyout. In response, EA employed a strategy to buy US Treasuries, using the collateral to argue that its bonds achieved investment grade independently.
Egan-Jones, though smaller than the "big three" rating agencies, has been scrutinized by the SEC over potential commercial influence on its ratings procedures. Despite this, EA maintains that Egan-Jones' rating replaces Moody’s for these specific bonds.
Bondholders, however, disagree, arguing that a private rating cannot replace a public one. The European Securities and Markets Authority certified Egan-Jones in 2014, and its ratings hold regulatory significance across Europe.
The complexity deepens with conflicting interpretations of a key clause regarding payment obligations. Meanwhile, European bond markets carry increasing technology debt, reflecting the broader implications of this dispute.