# EDGAR Filing Document

**Accession Number:** 0001651331
**File Stem:** 0001651331-23-000004
**Filing Date:** 2023-3
**Character Count:** 430496
**Document Hash:** 2cfe6b8bc7d9f845c9b8b2789571bfa8
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001651331-23-000004.hdr.sgml**: 20230331

**ACCESSION NUMBER**: 0001651331-23-000004

**CONFORMED SUBMISSION TYPE**: NRSRO-CE

**PUBLIC DOCUMENT COUNT**: 10

**FILED AS OF DATE**: 20230331

**DATE AS OF CHANGE**: 20230331

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Egan-Jones Ratings Co
- **CENTRAL INDEX KEY:** 0001651331
- **IRS NUMBER:** 232705856
- **STATE OF INCORPORATION:** PA
- **FISCAL YEAR END:** 1231

**FILING VALUES:**
- **FORM TYPE:** NRSRO-CE
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 110-00131
- **FILM NUMBER:** 23790049

**BUSINESS ADDRESS:**
- **STREET 1:** 61 HAVERFORD STATION ROAD
- **CITY:** HAVERFORD
- **STATE:** PA
- **ZIP:** 19041-1506
- **BUSINESS PHONE:** 610-642-2411

**MAIL ADDRESS:**
- **STREET 1:** 61 HAVERFORD STATION ROAD
- **CITY:** HAVERFORD
- **STATE:** PA
- **ZIP:** 19041-1506

### Attached PDF Documents

**Attachment 1:** `Form_NRSRO.pdf`

FORM NRSRO

| OMB APPROVAL |
| --- |
| OMB Number: 3235-0625 |
| Expires: Dec. 31, 2023 |
| Estimated average burden hours per response: 36 |

# APPLICATION FOR REGISTRATION AS A NATIONALLY RECOGNIZED STATISTICAL RATING ORGANIZATION (NRSRO)

SEC 1541 (1-15)

Persons who respond to the collection of information contained in this form are not required to respond unless the form displays a currently valid OMB control number.

1

# APPLICATION FOR REGISTRATION AS A
NATIONALLY RECOGNIZED
STATISTICAL RATING ORGANIZATION (NRSRO)

☐ INITIAL APPLICATION

☑ ANNUAL CERTIFICATION

☐ APPLICATION TO ADD CLASS
OF CREDIT RATINGS

☐ UPDATE OF REGISTRATION
Items and/or Exhibits Amended:

☐ APPLICATION SUPPLEMENT
Items and/or Exhibits Supplemented:

☐ WITHDRAWAL FROM REGISTRATION

Important: Refer to Form NRSRO Instructions for General Instructions, Item-by-Item Instructions, an Explanation of Terms, and the Disclosure Reporting Page (NRSRO). "You" and "your" mean the person filing or furnishing, as applicable, this Form NRSRO. "Applicant" and "NRSRO" mean the person filing or furnishing, as applicable, this Form NRSRO and any credit rating affiliate identified in Item 3.

1. A. Your full name:

Egan-Jones Ratings Company

B. (i) Name under which your credit rating business is primarily conducted, if different from Item 1A:
N/A

(ii) Any other name under which your credit rating business is conducted and where it is used (other than the name of a credit rating affiliate identified in Item 3):
N/A

C. Address of your principal office (do not use a P.O. Box):

| 61 Haverford Sta. Rd. | Haverford | PA | 19041 |
| --- | --- | --- | --- |
| (Number and Street) | (City) | (State/Country) | (Zip/Postal Code) |

D. Mailing address, if different:

| N/A | N/A | N/A | N/A |
| --- | --- | --- | --- |
| (Number and Street) | (City) | (State/Country) | (Zip/Postal Code) |

E. Contact person (See Instructions):

| Michael Brawer |  | Designated Compliance Officer |  |
| --- | --- | --- | --- |
| (Name and Title) |  |  |  |
| 61 Haverford Sta. Rd. | Haverford | PA | 19041(also in NY |
| (Number and Street) | (City) | (State/Country) | (Zip/Postal Code) |

# CERTIFICATION:

The undersigned has executed this Form NRSRO on behalf of, and on the authority of, the Applicant/NRSRO. The undersigned, on behalf of the Applicant/NRSRO, represents that the information and statements contained in this Form, including Exhibits and attachments, all of which are part of this Form, are accurate in all significant respects. If

2

this is an ANNUAL CERTIFICATION, the undersigned, on behalf of the NRSRO, represents that the NRSRO's application on Form NRSRO, as amended, is accurate in all significant respects.

3/31/2023

Egan-Jones Ratings Company

(Date)

(Name of the Applicant/NRSRO)

By: /s/ Sean Egan

Sean Egan, President

(Signature)

(Print Name and Title)

2. A. Your legal status:

☑ Corporation ☐ Limited Liability Company ☐ Partnership ☐ Other (specify) _______

B. Month and day of your fiscal year end: 12/31

C. Place and date of your formation (i.e., state or country where you were incorporated, where your partnership agreement was filed, or where you otherwise were formed):

State/Country of formation: Delaware Date of formation: 12/1/92

3. Your credit rating affiliates (See Instructions):

| N/A | N/A |
| --- | --- |
| (Name) | (Address) |
| (Name) | (Address) |
| (Name) | (Address) |
| (Name) | (Address) |
| (Name) | (Address) |

4. The designated compliance officer of the Applicant/NRSRO (See Instructions):

| Michael Brawer | Designated Compliance Officer |  |  |
| --- | --- | --- | --- |
| (Name and Title) |  |  |  |
| 61 Haverford Sta. Rd. | Haverford | PA | 19041 (also in NY office) |
| (Number and Street) | (City) | (State/Country) | (Postal Code) |

5. Describe in detail how this Form NRSRO and Exhibits 1 through 9 to this Form NRSRO will be made publicly and freely available on an easily accessible portion of the corporate Internet website of the Applicant/NRSRO (See Instructions):

Firm displays Form NRSRO and Exhibits 1-9 on its website
at the following URL: https://www.egan-jones.com/nrsro

6. COMPLETE ITEM 6 ONLY IF THIS IS AN INITIAL APPLICATION, APPLICATION SUPPLEMENT, OR APPLICATION TO ADD A CLASS OF CREDIT RATINGS.

A. Indicate below the classes of credit ratings for which the Applicant/NRSRO is applying to be registered. For each class, indicate the approximate number of obligors, securities, and money market instruments in that class as of the date of this application for which the Applicant/NRSRO has an outstanding credit rating and the approximate date the Applicant/NRSRO began issuing credit ratings as a "credit rating agency" in that class on a continuous basis through the present (See Instructions):

3

| Class of credit ratings | Applying for registration | Approximate number currently outstanding | Approximate date issuance commenced |
| --- | --- | --- | --- |
| financial institutions as that term is defined in section 3(a)(46) of the Exchange Act (15 U.S.C. 78c(a)(46)), brokers as that term is defined in section 3(a)(4) of the Exchange Act (15 U.S.C. 78c(a)(4)), and dealers as that term is defined in section 3(a)(5) of the Exchange Act (15 U.S.C. 78c(a)(5)) | ☐ |  |  |
| insurance companies as that term is defined in section 3(a)(19) of the Exchange Act (15 U.S.C. 78c(a)(19)) | ☐ |  |  |
| corporate issuers | ☐ |  |  |
| issuers of asset-backed securities as that term is defined in 17 CFR 229.1101(c) | ☐ |  |  |
| issuers of government securities as that term is defined in section 3(a)(42) of the Exchange Act (15 U.S.C. 78c(a)(42)), municipal securities as that term is defined in section 3(a)(29) of the Exchange Act (15 U.S.C. 78c(a)(29)), and foreign government securities | ☐ |  |  |

B. Briefly describe how the Applicant/NRSRO makes the credit ratings in the classes indicated in Item 6A readily accessible for free or for a reasonable fee (See Instructions):

C. Check the applicable box and attach certifications from qualified institutional buyers, if required (See Instructions):

☐ The Applicant/NRSRO is attaching _______ certifications from qualified institutional buyers to this application. Each is marked "Certification from Qualified Institutional Buyer."
☐ The Applicant/NRSRO is exempt from the requirement to file certifications from qualified institutional buyers pursuant to section 15E(a)(1)(D) of the Exchange Act.

Note: You are not required to make a Certification from a Qualified Institutional Buyer filed with this Form NRSRO publicly available on your corporate Internet website pursuant to Exchange Act Rule 17g-1(i). You may request that the Commission keep these certifications confidential by marking each page "Confidential Treatment" and complying with Commission rules governing confidential treatment. The Commission will keep the certifications confidential upon request to the extent permitted by law.

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# **7. DO NOT COMPLETE ITEM 7 IF THIS IS AN INITIAL APPLICATION.**

**A.** Indicate below the classes of credit ratings for which the NRSRO is currently registered. For each class, indicate the approximate number of obligors, securities, and money market instruments in that class for which the NRSRO had an outstanding credit rating as of the most recent calendar year end and the approximate date the NRSRO began issuing credit ratings as a 'credit rating agency' in that class on a continuous basis through the present (See Instructions):

| Class of credit rating | Currently registered | Approximate number outstanding as of the most recent calendar year end | Approximate date issuance commenced |
| --- | --- | --- | --- |
| financial institutions as that term is defined in section 3(a)(46) of the Exchange Act (15 U.S.C. 78c(a)(46)), brokers as that term is defined in section 3(a)(4) of the Exchange Act (15 U.S.C. 78c(a)(4)), and dealers as that term is defined in section 3(a)(5) of the Exchange Act (15 U.S.C. 78c(a)(5)) | ☑ | 6020 | 12/1995 |
| insurance companies as that term is defined in section 3(a)(19) of the Exchange Act (15 U.S.C. 78c(a)(19)) | ☑ | 626 | 12/1995 |
| corporate issuers | ☑ | 8673 | 12/1995 |
| issuers of asset-backed securities as that term is defined in 17 CFR 229.1101(c) | ☐ | N/A | N/A |
| issuers of government securities as that term is defined in section 3(a)(42) of the Act (15 U.S.C. 78c(a)(42)), municipal securities as that term is defined in section 3(a)(29) of the Exchange Act (15 U.S.C. 78c(a)(29)), and foreign government securities | ☐ | N/A | N/A |

**B.** Briefly describe how the NRSRO makes the credit ratings in the classes indicated in Item 7A readily accessible for free or for a reasonable fee (See Instructions):

The Firm posts its public ratings on its website (www.egan-jones.com) in readily accessible form

for its institutional only customers who are charged on a negotiated subscription basis for access to the

rm's ratings. All subscribers have ready access to the website through a secure login.

**8.** Answer each question. Provide information that relates to a 'Yes' answer on a Disclosure Reporting Page (NRSRO) and submit the Disclosure Reporting Page with this Form NRSRO (See Instructions). You are not required to make any disclosure reporting pages submitted with this Form publicly available on your corporate Internet website pursuant to Exchange Act Rule 17g-1(i). You may request that the Commission keep any disclosure reporting pages confidential by marking each page 'Confidential Treatment' and complying with Commission rules governing confidential treatment. The Commission will keep the disclosure reporting pages confidential upon request to the extent permitted by law.

5

|  | YES | NO |
| --- | --- | --- |
| A. Has the Applicant/NRSRO or any person within the Applicant/NRSRO committed or omitted any act, or been subject to an order or finding, enumerated in subparagraphs (A), (D), (E), (G), or (H) of section 15(b)(4) of the Securities Exchange Act of 1934, been convicted of any offense specified in section 15(b)(4)(B) of the Securities Exchange Act of 1934, or been enjoined from any action, conduct, or practice specified in section 15(b)(4)(C) of the Securities Exchange Act of 1934 in the ten years preceding the date of the initial application of the Applicant/NRSRO for registration as an NRSRO or at any time thereafter? | ☑ | ☐ |
| B. Has the Applicant/NRSRO or any person within the Applicant/NRSRO been convicted of any crime that is punishable by imprisonment for 1 or more years, and that is not described in section 15(b)(4) of the Securities Exchange Act of 1934, or been convicted of a substantially equivalent crime by a foreign court of competent jurisdiction in the ten years preceding the date of the initial application of the Applicant/NRSRO for registration as an NRSRO or at any time thereafter? | ☐ | ☑ |
| C. Is any person within the Applicant/NRSRO subject to any order of the Commission barring or suspending the right of the person to be associated with an NRSRO? | ☑ | ☐ |

# **9. Exhibits (See Instructions).**

| Exhibit 1. Credit ratings performance measurement statistics. ☑ Exhibit 1 is attached and made a part of this Form NRSRO. |
| --- |
| Exhibit 2. A description of the procedures and methodologies used in determining credit ratings. ☑ Exhibit 2 is attached and made a part of Form NRSRO. |
| Exhibit 3. Policies or procedures adopted and implemented to prevent the misuse of material, nonpublic information. ☑ Exhibit 3 is attached and made a part of this Form NRSRO. |
| Exhibit 4. Organizational structure. ☑ Exhibit 4 is attached to and made a part of this Form NRSRO. |
| Exhibit 5. The code of ethics or a statement of the reasons why a code of ethics is not in effect. ☑ Exhibit 5 is attached to and made a part of this Form NRSRO. |
| Exhibit 6. Identification of conflicts of interests relating to the issuance of credit ratings. ☑ Exhibit 6 is attached to and made a part of this Form NRSRO. |
| Exhibit 7. Policies and procedures to address and manage conflicts of interest. ☑ Exhibit 7 is attached to and made a part of this Form NRSRO. |

6

| Exhibit 8. Certain information regarding the credit rating agency's credit analysts and credit analyst supervisors. ☑ Exhibit 8 is attached to and made a part of this Form NRSRO. |
| --- |
| Exhibit 9. Certain information regarding the credit rating agency's designated compliance officer. ☑ Exhibit 9 is attached to and made a part of this Form NRSRO. |
| Exhibit 10. A list of the largest users of credit rating services by the amount of net revenue earned from the user during the fiscal year ending immediately before the date of the initial application. ☐ Exhibit 10 is attached to and made a part of this Form NRSRO. Note: You are not required to make this Exhibit publicly available on your corporate Internet website pursuant to Exchange Act Rule 17g-1(i). You may request that the Commission keep this Exhibit confidential by marking each page 'Confidential Treatment' and complying with Commission rules governing confidential treatment. The Commission will keep the information and documents in the Exhibit confidential upon request to the extent permitted by law. |
| Exhibit 11. Audited financial statements for each of the three fiscal or calendar years ending immediately before the date of the initial application. ☐ Exhibit 11 is attached to and made a part of this Form NRSRO. Note: You are not required to make this Exhibit publicly available on your corporate Internet website pursuant to Exchange Act Rule 17g-1(i). You may request that the Commission keep this Exhibit confidential by marking each page 'Confidential Treatment' and complying with Commission rules governing confidential treatment. The Commission will keep the information and documents in the Exhibit confidential upon request to the extent permitted by law. |
| Exhibit 12. Information regarding revenues for the fiscal or calendar year ending immediately before the date of the initial application. ☐ Exhibit 12 is attached to and made a part of this Form NRSRO. Note: You are not required to make this Exhibit publicly available on your corporate Internet website pursuant to Exchange Act Rule 17g-1(i). You may request that the Commission keep this Exhibit confidential by marking each page 'Confidential Treatment' and complying with Commission rules governing confidential treatment. The Commission will keep the information and documents in the Exhibit confidential upon request to the extent permitted by law. |
| Exhibit 13. The total and median annual compensation of credit analysts. ☐ Exhibit 13 is attached and made a part of this Form NRSRO. Note: You are not required to make this Exhibit publicly available on your corporate Internet website pursuant to Exchange Act Rule 17g-1(i). You may request that the Commission keep this Exhibit confidential by marking each page 'Confidential Treatment' and complying with Commission rules governing confidential treatment. The Commission will keep the information and documents in the Exhibit confidential upon request to the extent permitted by law. |

7

# DISCLOSURE REPORTING PAGE (NRSRO)

This Disclosure Reporting Page (DRP) is to be used to provide information concerning affirmative responses to Item 8 of Form NRSRO.

Submit a separate DRP for each person that: (a) has committed or omitted any act, or been subject to an order or finding, enumerated in subparagraphs (A), (D), (E), (G), or (H) of section 15(b)(4) of the Securities Exchange Act of 1934, has been convicted of any offense specified in section 15(b)(4)(B) of the Securities Exchange Act of 1934, or has been enjoined from any action, conduct, or practice specified in section 15(b)(4)(C) of the Securities Exchange Act of 1934; (b) has been convicted of any crime that is punishable by imprisonment for 1 or more years, and that is not described in section 15(b)(4) of the Securities Exchange Act of 1934, or has been convicted of a substantially equivalent crime by a foreign court of competent jurisdiction; or (c) is subject to any order of the Commission barring or suspending the right of the person to be associated with an NRSRO.

Name of Applicant/NRSRO

Egan-Jones Ratings Company

Date

3/13/2013

Check Item being responded to:

Item 8A
Item 8B
Item 8C

Full name of the person for whom this DRP is being submitted:

Egan-Jones Ratings Company and Sean J. Egan

If this DRP provides information relating to a "Yes" answer to Item 8A, describe the act(s) that was (were) committed or omitted; or the order(s) or finding(s); or the injunction(s) (provide the relevant statute(s) or regulation(s)) and provide jurisdiction(s) and date(s):

See Securities Exchange Act of 1934, Release No. 68703/ January 22, 2013,

Administrative Proceeding File No. 3-14856.

If this DRP provides information relating to a "Yes" answer to Item 8B, describe the crime(s) and provide jurisdiction(s) and date(s):

Not Applicable.

If this DRP provides information relating to a "Yes" answer to Item 8C, attach the relevant Commission order(s) and provide the date(s):

See above Item 8A.

37

# DISCLOSURE REPORTING PAGE (NRSRO)

This Disclosure Reporting Page (DRP) is to be used to provide information concerning affirmative responses to Item 8 of Form NRSRO.

Submit a separate DRP for each person that: (a) has committed or omitted any act, or been subject to an order or finding, enumerated in subparagraphs (A), (D), (E), (G), or (H) of section 15(b)(4) of the Securities Exchange Act of 1934, has been convicted of any offense specified in section 15(b)(4)(B) of the Securities Exchange Act of 1934, or has been enjoined from any action, conduct, or practice specified in section 15(b)(4)(C) of the Securities Exchange Act of 1934; (b) has been convicted of any crime that is punishable by imprisonment for 1 or more years, and that is not described in section 15(b)(4) of the Securities Exchange Act of 1934, or has been convicted of a substantially equivalent crime by a foreign court of competent jurisdiction; or (c) is subject to any order of the Commission barring or suspending the right of the person to be associated with an NRSRO.

Name of Applicant/NRSRO

Egan-Jones Ratings Company

Date

3/31/2023

Check Item being responded to:

Item 8A
Item 8B
Item 8C

Full name of the person for whom this DRP is being submitted:

Egan-Jones Ratings Company and Sean Egan

If this DRP provides information relating to a "Yes" answer to Item 8A, describe the act(s) that was (were) committed or omitted; or the order(s) or finding(s); or the injunction(s) (provide the relevant statute(s) or regulation(s)) and provide jurisdiction(s) and date(s):

See Securities Exchange Act of 1934, Release No. 95127/ June 21, 2022,

Administrative Proceeding File No. 3-20902.

If this DRP provides information relating to a "Yes" answer to Item 8B, describe the crime(s) and provide jurisdiction(s) and date(s):

Not Applicable.

If this DRP provides information relating to a "Yes" answer to Item 8C, attach the relevant Commission order(s) and provide the date(s):

Not Applicable.

37

# Egan-Jones Ratings Company (“EJR”)

# List of Material Changes to Form NRSRO Pursuant to Form NRSRO Instruction F

A. As part of this Annual Certification filing, EJR has made the following material updates:

1) Exhibit 3 was updated to:

- Include a new policy ("Standard for Shared E-Mail Addresses")
- Include a new policy ("Types of Credit Ratings")

2) Exhibit 7 was updated to:

- Include a new policy ("Roles and Responsibilities: Supplemental Policies and Procedures")
- Include a new policy ("Standard for Shared E-Mail Addresses")
- Include a new policy ("Travel, Gifts, & Entertainment Policy")
- Include a new policy ("Compliance Policy and Procedure-Conflicts of Interest Training")

**Attachment 2:** `ejrex1.pdf`

# **Egan-Jones Ratings Company**

# 2023 Form NRSRO Annual Certification

Exhibit 1 Credit Ratings Performance Statistics

Attached please find the Rating Transition and Default Rates listed as follows:

- Financial Institutions, Brokers, or Dealers - 1-year, 3-year and 10-year Transition and Default Rates
- Insurance Companies - 1-year, 3-year and 10-year Transition and Default Rates
- Corporate Issuers - 1-year, 3-year and 10-year Transition and Default Rates

## Financial Institutions, Brokers, or Dealers - 1-Year Transition and Default Rates (Long-Term Credit Ratings)

(December 31, 2021 through December 31, 2022)

| Credit Ratings as of 12/31/2021 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Outcomes during 12/31/2021 - 12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC+ | CCC | CCC- | CC | C | Default | Paid off | Withdrawn (Other) |
| AAA | 1 | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA+ | 3 |  | 66.7% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 33.3% |
| AA | 6 |  |  | 83.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 16.7% |
| AA- | 20 |  |  | 10.0% | 80.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 10.0% |
| A+ | 43 |  |  |  | 2.3% | 76.7% | 4.7% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 16.3% |
| A | 148 |  |  |  | 0.7% | 2.7% | 74.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 1.4% | 20.9% |
| A- | 190 |  |  |  |  | 2.6% | 5.3% | 57.8% | 1.1% | 1.1% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 32.1% |
| BBB+ | 143 |  |  |  | 0.7% |  | 1.4% | 7.7% | 61.5% | 0.7% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 28.0% |
| BBB | 78 |  |  |  |  |  |  | 1.3% | 7.7% | 73.0% |  |  | 1.3% |  |  |  |  |  |  |  |  |  |  |  | 16.7% |
| BBB- | 32 |  |  |  |  |  |  | 3.1% |  | 6.3% | 59.3% |  |  |  |  |  |  |  |  |  |  |  |  |  | 31.3% |
| BB+ | 5 |  |  |  |  |  |  |  | 20.0% |  | 20.0% | 60.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |
| BB | 4 |  |  |  |  |  |  |  |  |  | 25.0% | 25.0% | 25.0% |  |  | 25.0% |  |  |  |  |  |  |  |  |  |
| BB- | 1 |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |
| B+ | 4 |  |  |  |  |  |  |  |  |  | 25.0% |  |  |  | 50.0% |  |  |  |  |  |  |  |  |  | 25.0% |
| B | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |
| B- | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |
| CCC+ | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |
| CCC | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CCC- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CC | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |
| C | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total | 682 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

# Financial Institutions, Brokers, or Dealers - 3-Year Transition and Default Rates (Long-Term Credit Ratings)

(December 31, 2019 through December 31, 2022)

| Credit Ratings as of 12/31/2019 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Outcomes during 12/31/2019-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC+ | CCC | CCC- | CC | C | Default | Paid off | Withdrawn (Other) |
| AAA | 1 | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA+ | 1 |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA | 3 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |
| AA- | 12 |  |  | 16.7% | 33.4% | 8.3% | 8.3% | 8.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 25.0% |
| A+ | 52 |  |  |  | 3.8% | 34.7% | 30.8% | 7.7% | 1.9% | 1.9% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 19.2% |
| A | 128 |  |  |  | 1.6% | 5.5% | 41.2% | 10.2% | 3.9% | 1.6% |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.8% | 35.2% |
| A- | 145 |  |  |  | 0.7% | 1.4% | 7.6% | 27.6% | 12.4% | 2.8% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 47.5% |
| BBB+ | 76 |  |  |  |  |  | 1.3% | 10.5% | 30.3% | 7.9% | 5.3% |  | 1.3% |  |  |  |  |  |  |  |  |  |  |  | 43.4% |
| BBB | 36 |  |  |  |  |  | 2.8% | 2.8% | 11.1% | 41.6% | 5.6% |  |  |  |  |  |  |  |  |  |  |  |  |  | 36.1% |
| BBB- | 15 |  |  |  |  |  |  | 6.7% | 13.3% | 13.3% | 6.7% | 6.7% |  |  |  |  |  |  |  |  |  |  |  |  | 53.3% |
| BB+ | 3 |  |  |  |  |  |  |  |  |  | 33.4% |  |  |  |  | 33.3% |  |  |  |  |  |  |  |  | 33.3% |
| BB | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |
| BB- | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |
| B+ | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |
| B | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| B- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CCC+ | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CCC | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |
| CCC- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CC | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| C | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total | 476 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

## Financial Institutions, Brokers, or Dealers - 10-Year Transition and Default Rates (Long-Term Credit Ratings)

(December 31, 2012 through December 31, 2022)

| Credit Ratings as of 12/31/2012 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Outcomes during 12/31/2012-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC+ | CCC | CCC- | CC | C | Default | Paid off | Withdrawn (Other) |
| AAA | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA+ | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA | 2 |  |  |  |  |  | 50.0% | 50.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA- | 1 |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| A+ | 4 |  |  |  |  | 25.0% | 50.0% | 25.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| A | 10 |  |  |  | 10.0% | 30.0% |  | 10.0% | 20.0% | 10.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 20.0% |
| A- | 10 |  |  |  |  |  | 70.0% |  | 10.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 20.0% |
| BBB+ | 17 |  |  |  |  | 5.9% | 23.5% | 11.8% | 17.6% | 5.9% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 35.3% |
| BBB | 12 |  |  |  |  |  | 8.3% | 16.7% | 41.7% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 33.3% |
| BBB- | 9 |  |  |  |  |  |  | 11.1% |  | 33.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 55.6% |
| BB+ | 12 |  |  |  |  |  |  | 16.7% | 8.3% | 50.0% |  |  |  |  |  | 8.3% |  |  |  |  |  |  |  |  | 16.7% |
| BB | 5 |  |  |  |  |  |  |  | 20.0% | 20.0% |  |  |  |  |  |  | 20.0% |  |  |  |  |  |  |  | 40.0% |
| BB- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| B+ | 5 |  |  |  |  |  |  |  | 20.0% |  | 20.0% |  |  |  |  |  |  |  |  |  |  |  | 20.0% |  | 40.0% |
| B | 4 |  |  |  |  |  |  |  |  |  | 25.0% |  |  |  |  |  |  |  |  |  |  |  |  |  | 75.0% |
| B- | 5 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |
| CCC+ | 2 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |
| CCC | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |
| CCC- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CC | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| C | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total | 99 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

## Insurance Companies - 1-Year Transition and Default Rates (Long-Term Credit Ratings)

(December 31, 2021 through December 31, 2022)

| Credit Ratings as of 12/31/2021 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Outcomes during 12/31/2021 - 12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC+ | CCC | CCC- | CC | C | Default | Paid off | Withdrawn (Other) |
| AAA | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA+ | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA- | 1 |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| A+ | 5 |  |  |  |  | 80.0% | 20.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| A | 13 |  |  |  |  | 7.7% | 69.2% | 15.4% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 7.7% |
| A- | 16 |  |  |  |  | 6.3% | 37.2% | 31.3% | 6.3% | 6.3% |  | 6.3% |  |  |  |  |  |  |  |  |  |  |  |  | 6.3% |
| BBB+ | 17 |  |  |  |  |  | 5.9% | 23.5% | 41.2% | 17.6% | 5.9% | 5.9% |  |  |  |  |  |  |  |  |  |  |  |  |  |
| BBB | 18 |  |  |  |  |  |  |  | 22.2% | 61.1% | 5.6% |  |  |  |  |  |  |  |  |  |  |  |  |  | 11.1% |
| BBB- | 5 |  |  |  |  |  |  |  |  |  | 80.0% | 20.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |
| BB+ | 1 |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| BB | 1 |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |
| BB- | 3 |  |  |  |  |  |  |  |  |  |  | 33.3% |  | 66.7% |  |  |  |  |  |  |  |  |  |  |  |
| B+ | 4 |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |
| B | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |
| B- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CCC+ | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CCC | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |
| CCC- | 2 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 50.0% |  |  |  |  | 50.0% |
| CC | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |
| C | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total | 89 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

## Insurance Companies - 3-Year Transition and Default Rates (Long-Term Credit Ratings)

(December 31, 2019 through December 31, 2022)

| Credit Ratings as of 12/31/2019 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Outcomes during 12/31/2019-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC+ | CCC | CCC- | CC | C | Default | Paid off | Withdrawn (Other) |
| AAA | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA+ | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA- | 1 |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| A+ | 5 |  |  |  |  | 20.0% | 40.0% | 40.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| A | 15 |  |  |  |  | 6.7% | 53.3% | 26.7% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 13.3% |
| A- | 9 |  |  |  |  | 11.1% | 22.2% | 11.1% | 33.4% |  | 22.2% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| BBB+ | 13 |  |  |  |  | 7.7% |  | 30.8% | 38.4% | 15.4% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 7.7% |
| BBB | 14 |  |  |  |  |  | 7.1% |  | 7.1% | 43.0% | 21.4% | 21.4% |  |  |  |  |  |  |  |  |  |  |  |  |  |
| BBB- | 7 |  |  |  |  |  |  |  | 14.3% | 42.8% | 14.3% | 14.3% |  |  |  |  |  |  |  |  |  |  |  |  | 14.3% |
| BB+ | 3 |  |  |  |  |  |  |  |  |  | 33.4% |  | 33.3% |  |  |  |  |  |  |  |  |  |  |  | 33.3% |
| BB | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| BB- | 2 |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |
| B+ | 2 |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |
| B | 2 |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 50.0% |  |  |  | 50.0% |  |  |  |  |  |
| B- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CCC+ | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CCC | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |
| CCC- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CC | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| C | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total | 74 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

## Insurance Companies - 10-Year Transition and Default Rates (Long-Term Credit Ratings)

(December 31, 2012 through December 31, 2022)

| Credit Ratings as of 12/31/2012 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Outcomes during 12/31/2012-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC+ | CCC | CCC- | CC | C | Default | Paid off | Withdrawn (Other) |
| AAA | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA+ | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| A+ | 3 |  |  |  |  | 33.3% | 66.7% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| A | 5 |  |  |  |  | 20.0% | 20.0% |  |  | 20.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 40.0% |
| A- | 10 |  |  |  |  |  | 10.0% | 20.0% | 10.0% |  | 40.0% |  |  |  |  |  |  |  |  |  |  |  |  |  | 20.0% |
| BBB+ | 10 |  |  |  |  | 10.0% | 20.0% | 20.0% | 10.0% | 10.0% | 10.0% | 10.0% |  |  |  |  |  |  |  |  |  |  |  |  | 10.0% |
| BBB | 7 |  |  |  |  |  | 14.3% | 28.6% |  | 14.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 42.8% |
| BBB- | 5 |  |  |  |  |  |  |  | 20.0% | 20.0% |  | 20.0% |  | 20.0% |  |  |  |  |  |  |  |  |  |  | 20.0% |
| BB+ | 1 |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| BB | 3 |  |  |  |  |  |  |  | 33.4% | 33.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 33.3% |
| BB- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| B+ | 1 |  |  |  |  |  |  |  |  |  | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| B | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| B- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CCC+ | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CCC | 2 |  |  |  |  |  |  |  | 50.0% |  |  |  |  |  |  |  |  |  |  | 50.0% |  |  |  |  |  |
| CCC- | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| CC | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |
| C | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |
| Total | 49 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

## Corporate Issuers - 1-Year Transition and Default Rates (Long-Term Credit Ratings)

(December 31, 2021 through December 31, 2022)

| Credit Ratings as of 12/31/2021 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Outcomes during 12/31/2021 - 12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC+ | CCC | CCC- | CC | C | Default | Paid off | Withdrawn (Other) |
| AAA | 4 | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA+ | 15 |  | 93.3% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 6.7% |
| AA | 52 |  | 7.7% | 86.6% |  |  | 1.9% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 3.8% |
| AA- | 106 |  |  | 12.3% | 78.3% | 0.9% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 8.5% |
| A+ | 159 |  |  | 3.1% | 17.6% | 72.5% | 3.1% |  | 0.6% |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 0.6% | 2.5% |
| A | 218 |  |  | 0.5% | 1.4% | 9.6% | 73.7% | 1.8% | 0.5% | 0.9% |  | 0.5% |  |  |  |  |  |  |  |  |  |  |  | 0.5% | 10.6% |
| A- | 259 |  |  |  | 1.9% | 6.9% | 15.1% | 63.3% | 3.9% | 1.5% | 0.8% |  | 0.4% |  |  |  |  |  |  |  |  |  |  | 0.4% | 5.8% |
| BBB+ | 288 |  |  |  | 0.3% | 0.7% | 5.6% | 10.8% | 75.4% | 3.5% | 0.3% | 0.3% |  |  |  |  |  |  |  |  |  |  |  |  | 3.1% |
| BBB | 330 |  |  |  |  | 0.9% | 3.9% | 5.5% | 13.6% | 64.3% | 2.7% | 0.6% | 0.3% | 0.3% |  | 0.3% |  |  |  |  |  |  |  | 0.3% | 7.3% |
| BBB- | 250 |  |  |  |  | 1.2% | 0.8% | 2.4% | 4.8% | 14.0% | 55.6% | 6.8% | 1.2% | 1.2% |  |  |  |  |  |  |  |  |  | 0.4% | 11.6% |
| BB+ | 226 |  |  |  |  | 0.4% | 0.4% | 1.3% | 4.0% | 5.3% | 14.2% | 50.2% | 8.8% | 0.4% | 1.3% |  |  |  |  |  |  |  |  | 1.8% | 11.9% |
| BB | 346 |  |  |  |  |  |  |  | 2.0% | 2.6% | 5.5% | 8.1% | 58.4% | 6.6% | 1.7% |  |  | 0.3% |  |  |  |  |  | 0.3% | 14.5% |
| BB- | 491 |  |  |  |  |  |  | 0.2% | 0.4% | 1.0% | 2.0% | 3.1% | 6.9% | 65.4% | 4.3% | 0.6% | 0.2% |  |  |  |  |  |  | 1.2% | 14.7% |
| B+ | 424 |  |  |  |  |  |  |  |  | 0.5% | 1.4% | 2.6% | 3.5% | 8.0% | 65.2% | 4.5% | 0.9% | 0.2% |  |  |  |  |  | 1.2% | 12.0% |
| B | 232 |  |  |  |  |  |  |  |  | 1.3% | 0.9% | 2.2% | 2.6% | 5.2% | 9.9% | 54.9% | 3.9% | 0.9% | 0.9% |  |  |  |  | 2.2% | 15.1% |
| B- | 150 |  |  |  |  |  |  |  | 0.7% | 1.3% | 0.7% |  | 2.0% | 6.0% | 6.7% | 12.0% | 48.7% | 5.3% | 1.3% |  |  |  |  |  | 15.3% |
| CCC+ | 103 |  |  |  |  |  |  |  |  |  |  | 2.9% | 3.9% | 5.8% | 5.8% | 7.8% | 6.8% | 43.7% | 4.9% | 1.9% |  |  | 1.0% |  | 15.5% |
| CCC | 80 |  |  |  |  |  |  |  |  |  |  |  | 1.3% | 2.5% | 1.3% | 10.0% | 12.5% | 12.5% | 42.3% | 7.5% | 1.3% |  |  | 1.3% | 7.5% |
| CCC- | 47 |  |  |  |  |  |  |  |  |  |  |  |  | 2.1% | 2.1% | 4.3% | 4.3% | 4.3% | 10.6% | 44.7% | 8.5% |  |  |  | 19.1% |
| CC | 63 |  |  |  |  |  |  |  |  |  |  |  |  | 1.6% | 1.6% |  | 3.2% | 3.2% | 4.8% | 7.9% | 65.0% |  |  | 1.6% | 11.1% |
| C | 16 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 12.5% | 62.5% |  |  | 25.0% |
| Total | 3859 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

## Corporate Issuers - 3-Year Transition and Default Rates (Long-Term Credit Ratings)

(December 31, 2019 through December 31, 2022)

| Credit Ratings as of 12/31/2019 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Outcomes during 12/31/2019-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC+ | CCC | CCC- | CC | C | Default | Paid off | Withdrawn (Other) |
| AAA | 3 | 100.0% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA+ | 17 | 5.9% | 70.5% | 5.9% | 5.9% | 5.9% |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 5.9% |
| AA | 53 |  | 1.9% | 64.1% | 9.4% | 5.7% | 7.5% | 1.9% | 1.9% |  |  |  |  |  |  |  |  | 1.9% |  |  |  |  |  |  | 5.7% |
| AA- | 64 |  | 3.1% | 7.8% | 40.5% | 18.8% | 7.8% | 3.1% | 6.3% | 1.6% |  |  | 1.6% |  |  |  |  |  |  |  |  |  |  |  | 9.4% |
| A+ | 141 |  |  | 1.4% | 9.9% | 49.0% | 19.9% | 2.8% | 5.7% | 2.8% |  |  | 0.7% |  |  |  |  |  |  |  |  |  |  |  | 7.8% |
| A | 172 |  |  | 0.6% | 1.2% | 11.0% | 37.7% | 18.6% | 7.0% | 4.1% | 1.2% | 2.3% | 1.7% | 2.3% |  | 0.6% |  | 1.2% |  |  |  |  |  |  | 10.5% |
| A- | 181 |  |  | 0.6% | 3.9% | 6.6% | 4.4% | 25.2% | 22.1% | 11.0% | 3.3% | 2.2% | 0.6% |  | 2.8% | 0.6% | 0.6% |  |  |  |  |  |  | 1.7% | 14.4% |
| BBB+ | 193 |  |  | 0.5% |  | 1.6% | 8.3% | 10.4% | 26.4% | 25.9% | 8.8% | 5.7% | 2.1% | 1.6% | 1.0% |  | 0.5% | 0.5% | 0.5% |  |  |  |  |  | 6.2% |
| BBB | 233 |  |  |  | 0.9% | 3.0% | 5.6% | 4.7% | 11.6% | 27.1% | 14.6% | 6.9% | 2.1% | 2.1% | 1.7% | 2.1% | 0.9% | 0.4% | 0.4% |  |  |  |  |  | 15.9% |
| BBB- | 186 |  |  |  |  |  | 2.7% | 2.2% | 5.9% | 7.5% | 24.7% | 15.1% | 8.1% | 7.5% | 1.1% | 2.7% | 1.1% | 0.5% |  | 0.5% |  |  |  | 0.5% | 19.9% |
| BB+ | 150 |  |  |  | 2.0% |  | 2.7% | 2.0% | 4.0% | 5.3% | 14.7% | 10.7% | 8.0% | 6.0% | 5.3% | 2.7% | 0.7% | 2.7% |  | 1.3% | 0.7% |  |  | 0.7% | 30.5% |
| BB | 199 |  |  |  |  | 0.5% | 1.5% | 1.0% | 2.0% | 2.5% | 2.5% | 1.5% | 21.1% | 11.1% | 7.0% | 5.0% | 1.5% | 1.0% | 0.5% | 1.5% | 0.5% | 0.5% | 0.5% | 0.5% | 37.8% |
| BB- | 280 |  |  |  |  |  |  | 0.7% | 0.7% | 1.8% | 1.8% | 2.5% | 5.7% | 23.9% | 17.9% | 5.0% | 2.1% | 0.7% | 1.1% |  |  | 0.4% |  | 1.8% | 33.9% |
| B+ | 235 |  |  |  |  |  | 0.4% |  |  | 1.3% | 0.9% | 2.6% | 2.1% | 4.7% | 24.3% | 8.9% | 6.0% | 3.4% | 1.3% | 0.4% | 0.9% |  | 0.4% | 1.7% | 40.7% |
| B | 128 |  |  |  |  |  |  |  | 1.6% |  | 1.6% | 2.3% | 1.6% | 5.5% | 10.2% | 23.4% | 9.4% | 5.5% | 1.6% |  |  |  | 1.6% | 3.1% | 32.6% |
| B- | 64 |  |  |  |  |  |  |  |  |  |  | 1.6% |  | 3.1% | 7.8% | 6.3% | 20.3% | 6.3% | 1.6% | 3.1% | 1.6% | 1.6% | 6.3% | 1.6% | 38.8% |
| CCC+ | 37 |  |  |  |  |  |  |  |  |  |  | 2.7% | 2.7% | 2.7% | 2.7% | 8.1% | 2.7% | 13.5% | 8.1% | 5.4% | 10.8% |  | 5.4% |  | 35.2% |
| CCC | 24 |  |  |  |  |  |  | 4.2% |  |  | 4.2% |  |  | 8.3% |  |  |  | 12.5% |  | 12.5% | 8.3% |  | 16.7% |  | 33.3% |
| CCC- | 9 |  |  |  |  |  |  |  |  |  |  |  | 11.1% |  |  |  | 11.1% | 11.1% |  |  |  |  | 33.4% |  | 33.3% |
| CC | 11 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 9.1% |  | 36.3% |  | 9.1% | 9.1% | 36.4% |
| C | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| Total | 2380 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

## Corporate Issuers - 10-Year Transition and Default Rates (Long-Term Credit Ratings)

(December 31, 2012 through December 31, 2022)

| Credit Ratings as of 12/31/2012 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Other Outcomes during 12/31/2012-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | AAA | AA+ | AA | AA- | A+ | A | A- | BBB+ | BBB | BBB- | BB+ | BB | BB- | B+ | B | B- | CCC+ | CCC | CCC- | CC | C | Default | Paid off | Withdrawn (Other) |
| AAA | 0 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
| AA+ | 10 |  | 10.0% | 40.0% | 10.0% | 10.0% | 10.0% |  | 10.0% |  |  |  | 10.0% |  |  |  |  |  |  |  |  |  |  |  |  |
| AA | 14 |  |  | 21.4% |  | 7.1% | 43.1% |  |  | 7.1% | 7.1% | 7.1% |  |  |  |  |  |  |  |  |  |  |  |  | 7.1% |
| AA- | 29 |  |  |  | 10.3% | 13.8% | 20.9% | 10.3% | 6.9% | 13.8% | 10.3% |  |  |  | 3.4% |  |  |  |  |  |  |  |  |  | 10.3% |
| A+ | 58 |  |  |  | 6.9% | 8.6% | 12.1% | 17.2% | 8.6% | 8.6% | 1.7% | 5.2% | 1.7% |  | 3.4% | 1.7% |  |  |  |  |  |  |  |  | 24.3% |
| A | 53 |  |  |  | 1.9% | 15.1% | 15.1% | 13.2% | 18.9% | 5.7% |  | 1.9% |  | 1.9% |  | 1.9% |  |  |  |  |  |  |  |  | 24.4% |
| A- | 96 |  |  |  | 2.1% | 6.3% | 8.3% | 10.4% | 10.4% | 16.7% | 7.3% | 3.1% | 1.0% | 3.1% | 2.1% |  |  | 1.0% |  |  |  |  | 1.0% |  | 27.2% |
| BBB+ | 108 |  |  |  |  | 5.6% | 4.6% | 3.7% | 15.7% | 14.8% | 13.9% | 4.6% | 6.5% | 1.9% | 1.9% | 0.9% |  |  |  |  |  |  | 0.9% |  | 25.0% |
| BBB | 94 |  |  |  |  |  | 3.2% | 5.3% | 14.9% | 19.1% | 6.4% | 5.3% | 4.3% |  | 2.1% | 3.2% | 1.1% | 1.1% |  |  |  |  | 1.1% |  | 32.9% |
| BBB- | 94 |  |  |  |  | 1.1% | 2.1% | 6.4% | 6.4% | 6.4% | 13.8% | 8.5% | 5.3% | 5.3% | 2.1% | 3.2% | 2.1% |  |  | 1.1% |  |  | 2.1% |  | 34.1% |
| BB+ | 95 |  |  |  | 1.1% | 2.1% | 3.2% | 4.2% | 6.3% | 9.5% | 3.2% | 5.3% | 8.4% | 6.3% | 3.2% | 2.1% | 2.1% |  |  |  |  |  | 2.1% |  | 40.9% |
| BB | 58 |  |  |  |  |  | 5.2% | 3.4% | 5.2% | 3.4% | 10.3% | 5.2% | 3.4% | 10.3% | 1.7% | 8.6% | 3.4% | 1.7% | 1.7% |  |  |  |  |  | 36.5% |
| BB- | 52 |  |  |  |  | 3.8% | 1.9% | 3.8% |  | 1.9% | 7.7% | 3.8% | 1.9% | 3.8% | 3.8% | 5.8% | 1.9% | 3.8% |  |  |  |  | 9.6% |  | 46.5% |
| B+ | 58 |  |  |  |  | 1.7% | 5.2% | 1.7% | 1.7% |  | 6.9% | 1.7% | 3.4% | 5.2% | 6.9% | 1.7% | 3.4% | 5.2% |  | 1.7% |  |  | 5.2% |  | 48.4% |
| B | 43 |  |  |  |  |  | 2.3% | 2.3% |  | 2.3% |  | 4.7% |  | 7.0% | 2.3% | 4.7% |  | 4.7% |  |  | 2.3% |  | 7.0% |  | 60.4% |
| B- | 39 |  |  |  |  |  | 2.6% |  | 2.6% | 5.1% |  |  |  | 5.1% |  |  | 2.6% | 2.6% | 2.6% |  |  |  | 15.4% |  | 61.4% |
| CCC+ | 11 |  |  |  |  |  |  |  |  | 9.1% |  |  | 9.1% | 9.1% | 9.1% |  |  |  |  | 9.1% | 9.1% |  | 9.1% |  | 36.3% |
| CCC | 15 |  |  |  |  |  |  |  | 6.7% |  | 6.7% |  |  | 6.7% |  |  | 6.7% |  | 6.7% | 6.7% |  |  |  |  | 59.8% |
| CCC- | 1 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 100.0% |
| CC | 11 |  |  |  | 9.1% |  |  |  |  |  |  |  | 9.1% |  |  | 9.1% |  |  |  |  |  |  | 9.1% |  | 63.6% |
| C | 3 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | 33.3% |  | 66.7% |
| Total | 942 |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |

# **Financial Institutions, Brokers, or Dealers - 1-Year Transition and Default Rates (Short-Term Credit Ratings)**
(December 31, 2021 through December 31, 2022)

| Credit Ratings as of 12/31/2021 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  | Other Outcomes during 12/31/2021-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | A1+ | A1 | A2 | A3 | B | C | Default | Paid off | Withdrawn (Other) |
| A1+ | 325 | 72.7% | 1.8% |  |  |  |  |  |  | 25.5% |
| A1 | 326 | 13.2% | 59.5% | 0.6% |  |  |  |  |  | 26.7% |
| A2 | 18 |  | 50.0% | 44.4% |  |  |  |  |  | 5.6% |
| A3 | 4 |  |  |  | 50.0% |  | 25.0% |  |  | 25.0% |
| B | 4 |  |  | 25.0% | 25.0% | 50.0% |  |  |  |  |
| C | 2 |  |  |  |  |  | 100.0% |  |  |  |
| Total | 679 |  |  |  |  |  |  |  |  |  |

# Financial Institutions, Brokers, or Dealers - 3-Year Transition and Default Rates (Short-Term Credit Ratings)
(December 31, 2019 through December 31, 2022)

| Credit Ratings as of 12/31/2019 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  | Other Outcomes during 12/31/2019-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | A1+ | A1 | A2 | A3 | B | C | Default | Paid off | Withdrawn (Other) |
| A1+ | 135 | 65.2% | 7.4% |  |  |  |  |  |  | 27.4% |
| A1 | 327 | 21.7% | 31.8% | 0.9% |  |  |  |  |  | 45.6% |
| A2 | 7 |  | 57.1% |  |  |  |  |  |  | 42.9% |
| A3 | 4 |  | 25.0% |  |  | 25.0% | 25.0% |  |  | 25.0% |
| B | 1 |  |  |  |  |  |  |  |  | 100.0% |
| C | 1 |  |  |  |  |  | 100.0% |  |  |  |
| Total | 475 |  |  |  |  |  |  |  |  |  |

# **Financial Institutions, Brokers, or Dealers - 10-Year Transition and Default Rates (Short-Term Credit Ratings)**

Egan-Jones does not have sufficient records of its assigned credit ratings in this class for the length of time necessary to produce a 10-year Transition/Default Matrix.

# Insurance Companies - 1-Year Transition and Default Rates (Short-Term Credit Ratings)
(December 31, 2021 through December 31, 2022)

| Credit Ratings as of 12/31/2021 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  | Other Outcomes during 12/31/2021-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | A1+ | A1 | A2 | A3 | B | C | Default | Paid off | Withdrawn (Other) |
| A1+ | 24 | 87.5% | 12.5% |  |  |  |  |  |  |  |
| A1 | 42 | 11.9% | 73.8% | 4.8% |  |  |  |  |  | 9.5% |
| A2 | 11 |  | 9.1% | 81.8% | 9.1% |  |  |  |  |  |
| A3 | 5 |  |  | 20.0% | 80.0% |  |  |  |  |  |
| B | 3 |  |  |  |  | 100.0% |  |  |  |  |
| C | 4 |  |  |  |  |  | 75.0% |  |  | 25.0% |
| Total | 89 |  |  |  |  |  |  |  |  |  |

# Insurance Companies - 3-Year Transition and Default Rates (Short-Term Credit Ratings)

(December 31, 2019 through December 31, 2022)

| Credit Ratings as of 12/31/2019 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  | Other Outcomes during 12/31/2019-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | A1+ | A1 | A2 | A3 | B | C | Default | Paid off | Withdrawn (Other) |
| A1+ | 16 | 81.2% | 6.3% |  |  |  |  |  |  | 12.5% |
| A1 | 41 | 19.5% | 65.8% | 9.8% |  |  |  |  |  | 4.9% |
| A2 | 8 |  | 25.0% | 50.0% | 12.5% |  |  |  |  | 12.5% |
| A3 | 5 |  |  | 40.0% | 60.0% |  |  |  |  |  |
| B | 3 |  |  |  | 33.4% | 33.3% | 33.3% |  |  |  |
| C | 1 |  |  |  |  |  |  |  |  | 100.0% |
| Total | 74 |  |  |  |  |  |  |  |  |  |

### **Insurance Companies - 10-Year Transition and Default Rates (Short-Term Credit Ratings)**

Egan-Jones does not have sufficient records of its assigned credit ratings in this class for the length of time necessary to produce a 10-year Transition/Default Matrix.

# **Corporate Issuers - 1-Year Transition and Default Rates (Short-Term Credit Ratings)**  
 (December 31, 2021 through December 31, 2022)

| Credit Ratings as of 12/31/2021 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  | Other Outcomes during 12/31/2021-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | A1+ | A1 | A2 | A3 | B | C | Default | Paid off | Withdrawn (Other) |
| A1+ | 775 | 88.7% | 3.9% | 0.3% |  |  |  |  |  | 7.1% |
| A1 | 1034 | 11.5% | 75.8% | 3.8% | 1.0% |  | 0.1% |  |  | 7.8% |
| A2 | 753 | 0.3% | 16.5% | 57.9% | 5.8% | 4.4% |  |  |  | 15.1% |
| A3 | 650 |  | 5.7% | 19.8% | 54.3% | 3.7% | 1.7% |  |  | 14.8% |
| B | 368 |  | 2.4% | 14.9% | 22.8% | 38.1% | 6.0% | 0.3% |  | 15.5% |
| C | 238 |  | 0.4% | 1.7% | 12.6% | 14.7% | 54.2% | 1.7% |  | 14.7% |
| Total | 3818 |  |  |  |  |  |  |  |  |  |

## Corporate Issuers - 3-Year Transition and Default Rates (Short-Term Credit Ratings)

(December 31, 2019 through December 31, 2022)

| Credit Ratings as of 12/31/2019 |  | Credit Ratings as of 12/31/2022 (Percent) |  |  |  |  |  | Other Outcomes during 12/31/2019-12/31/2022 (Percent) |  |  |
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| Credit Rating | Number of Ratings Outstanding | A1+ | A1 | A2 | A3 | B | C | Default | Paid off | Withdrawn (Other) |
| A1+ | 439 | 77.7% | 10.5% | 1.8% | 0.2% | 0.7% |  |  |  | 9.1% |
| A1 | 749 | 19.8% | 54.2% | 6.4% | 3.2% | 1.3% | 0.4% |  |  | 14.7% |
| A2 | 346 | 5.5% | 22.8% | 23.7% | 11.3% | 3.2% | 3.5% | 0.3% |  | 29.7% |
| A3 | 459 | 0.7% | 6.5% | 17.6% | 23.7% | 8.7% | 3.1% | 0.9% |  | 38.8% |
| B | 262 | 0.4% | 3.1% | 11.5% | 22.5% | 16.4% | 6.5% | 1.9% |  | 37.7% |
| C | 119 | 0.8% | 2.5% | 4.2% | 9.2% | 10.1% | 17.6% | 16.0% |  | 39.6% |
| Total | 2374 |  |  |  |  |  |  |  |  |  |

### **Corporate Issuers - 10-Year Transition and Default Rates (Short-Term Credit Ratings)**

Egan-Jones does not have sufficient records of its assigned credit ratings in this class for the length of time necessary to produce a 10-year Transition/Default Matrix.

The rating definitions and the definition of default are presented below. They are also publicly available at the following web address: https://www.egan-jones.com/understanding-ratings/rating-definitions/

## Long-Term Credit Rating Definitions

### AAA

Egan-Jones expects AAA ratings to have the highest level of creditworthiness with the lowest sensitivity to evolving credit conditions.

### AA

Egan-Jones expects AA ratings to have a higher level of creditworthiness with very low sensitivity to evolving credit conditions.

### A

Egan-Jones expects A ratings to have the high level of creditworthiness with low sensitivity to evolving credit conditions.

### BBB

Egan-Jones expects BBB ratings to have the moderate level of creditworthiness with moderate sensitivity to evolving credit conditions.

### BB, B, CCC, CC, and C

Obligations rated 'BB,' 'B,' 'CCC,' 'CC,' and 'C' are regarded as having significant speculative characteristics. 'BB' indicates the least degree of speculation and 'C' the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.

### BB

Egan-Jones expects BB ratings to have a low level of creditworthiness with high sensitivity to evolving credit conditions.

### B

Egan-Jones expects B ratings to have a lower level of creditworthiness with higher sensitivity to evolving credit conditions.

### CCC

Egan-Jones expects CCC ratings to have a lowest level of creditworthiness with highest sensitivity to evolving credit conditions.

### CC

Egan-Jones expects CC ratings to have the lowest level of creditworthiness and some expectation of recovery.

### C

Egan-Jones expects C ratings to have the lowest level of creditworthiness and little expectation of recovery.

### D

Egan-Jones expects D ratings to have the no determinable level of creditworthiness with uncertain recovery expectations.

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 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.

# **NR**

This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Egan-Jones does not rate a particular obligation as a matter of policy.

# **Short-Term Credit Rating Definitions**

# **A-1**

A-1 ratings have the highest short-term creditworthiness.

# **A-2**

A-2 ratings have a higher short-term creditworthiness.

# **A-3**

A-3 ratings have moderate short-term creditworthiness.

# **B**

B ratings have a low short-term creditworthiness.

# **C**

C ratings have the lowest short-term creditworthiness.

# **D**

D ratings have no discernable short-term creditworthiness.

A short-term 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 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.

The rating history is publicly available at the following web address:

<https://www.egan-jones.com/regulatory/sec-rule-17g-7/>

For other annual certification documents, please visit

<http://www.egan-jones.com/regulatory/form-nrsro/>

**Attachment 3:** `ejrex2_1.pdf`

![img-0.jpeg](img-0.jpeg)

# Methodologies for  
Determining Credit Ratings  
(Main Methodology)---

Version 16

Approval Date: March 16$^{th}$, 2023

**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

Egan-Jones Ratings Company, Inc. (“Egan-Jones” or “EJR”) is a credit rating agency established in 1995. Privately owned and operated without affiliation to any financial institution, Egan-Jones is respected for its timely, accurate evaluations of credit quality.

Egan-Jones ratings and research are available via e-mail, its website, and other distribution platforms. EJR is committed to continuously refining its expertise in the analysis of credit quality and is dedicated to maintaining objective and credible opinions within the global financial marketplace.

(This document replaces the prior NRSRO Form Exhibit 2 General Description of the Procedures and Methodologies to Determine Credit Ratings V15a, dated May 7, 2021.)

#### SEC Requirements

A general description of the procedures and methodologies used to determine credit ratings. The description must be sufficiently detailed to provide users of credit ratings with an understanding of the processes employed in determining credit ratings, including, as applicable, descriptions of: policies for determining whether to initiate a credit rating; a description of the public and non-public sources of information used in determining credit ratings, including information and analysis provided by third-party vendors; whether and, if so, how information about verification performed on assets underlying or referenced by a security or money market instrument issued by an asset pool or as part of any asset-backed or mortgage-backed securities transaction is relied on in determining credit ratings; the quantitative and qualitative models and metrics used to determine credit ratings, including whether and, if so, how assessments of the quality of originators of assets underlying or referenced by a security or money market instrument issued by an asset pool or as part of any asset-backed or mortgage-backed securities transaction factor into the determination of credit ratings; the methodologies by which credit ratings of other credit rating agencies are treated to determine credit ratings for securities or money market instruments issued by an asset pool or as part of any asset-backed or mortgage-backed securities transaction; the procedures for interacting with the management of a rated obligor or issuer of rated securities or money market instruments; the structure and voting process of committees that review or approve credit ratings; procedures for informing rated obligors or issuers of rated securities or money market instruments about credit rating decisions and for appeals of final or pending credit rating decisions; procedures for monitoring, reviewing, and updating credit ratings, including how frequently credit ratings are reviewed, whether different models or criteria are used for ratings surveillance than for determining initial ratings, whether changes made to models and criteria for determining initial ratings are applied retroactively to existing ratings, and whether changes made to models and criteria for performing ratings surveillance are incorporated into the models and criteria for determining initial ratings; and procedures to withdraw, or suspend the maintenance of, a credit rating. Market participants are provided the opportunity to comment on the methodologies through the EJR’s website (publicly available) for EJR’s consideration.

---

Egan-Jones /Rating Methodology

Egan-Jones
Ratings Company

Founded 1995

# Table of Contents

Introduction and Overview ... 1
Limitations and Disclaimers ... 3
Credit Rating Types ... 4
Rating Processes, Procedures and Policies ... 5
Rating Review and Ratings Review and Policy Committee ... 6
Non-Public Information ... 8
Issuer and Client Appeals ... 8
Initiating, Monitoring, Reviewing and Updating Ratings ... 8
Withdrawing Coverage ... 9
Country Risk Issues ... 9
Corporate Governance Issues ... 9
Business and Industry Risk Issues ... 9
Business Risk Profile ... 9
Major Considerations for the Rating Analysis ... 10
Industry Profitability and Cash Flow ... 11
Industry Competitive Conditions ... 12
Industry Stability ... 12
Industry Regulation ... 12
Other Industry Considerations ... 12
Financial Risk Issues ... 13
Overview ... 13
Earnings ... 14
Cash Flow and Coverage ... 14
Balance Sheet and Financial Flexibility Considerations ... 14
Rating the Security ... 16
Additional Comments relating primarily to Corporate Obligors ... 16
Additional Comments Related Solely to Financial Obligors ... 17
Additional Comments Related Solely to Insurance Obligors ... 18
Sovereign and Structured Finance (Non-NRSRO Ratings) ... 19
Sovereign Rating Methodology (Non-NRSRO) ... 19
Sovereign Rating Model - Key Variables and Ratios ... 23

Egan-Jones /Rating Methodology

Egan-Jones
Ratings Company

Founded 1995

Copyright and Disclaimer... 24
APPENDIX 1 EGAN-JONES'S RATING PHILOSOPHY ... 25
THE DEFINITION OF A "RATING"... 25
STABLE RATING PHILOSOPHY ... 25
HIERARCHY PRINCIPAL ... 25
QUALITATIVE AND QUANTITATIVE CONSIDERATIONS ... 27
APPENDIX 2 DEFINITION OF ISSUER RATING ... 28
APPENDIX 3 GUARANTEES, SECURITY, AND OTHER FORMS OF EXPLICIT SUPPORT ... 29
GUARANTEES... 29
KEEP-WELL AGREEMENTS ... 30
FINANCIAL INSTITUTION SUPPORT AGREEMENTS ... 30
COMFORT LETTERS... 30
COLLATERAL, SECURITY AND OTHER SURPORT... 31
CREDIT TENANT LEASES AND OTHER SECURED OBLIGATIONS... 31
APPENDIX 4 RATING HOLDING COMPANIES AND THEIR SUBSIDIARIES ... 32
GROUP I - HOLDCO RATING EQUALS GROUP RATING ... 33
GROUP II - HOLDCO RATED LOWER... 35
GROUP III - HOLDCO RATED HIGHER... 36
GROUP IV - CORPORATE IMPACT ON SUBSIDIARIES... 37
GENERAL CONSIDERATIONS FOR HOLDING COMPANY RATINGS... 39
RATIONALE ... 40
STRUCTURE... 40
QUALITATIVE ... 41
FINANCIAL STATEMENTS ... 42
APPENDIX 5 PREFERRED SHARE AND HYBRID CRITERIA... 42
APPENDIX 6 CREDIT RATING SYMBOLS, NUMBERS, OR SCORES ... 46
Global Long-Term Rating Scale... 49
Global Short-Term Rating Scale... 50
APPENDIX 7 TESTING OF RATING METHODOLOGIES AND RATING MODELS ... 51
APPENDIX 8 NON-SUBSCRIPTION RATINGS... 52
APPENDIX 9 OTHER METHODOLOGIES... 53
• EQUIPMENT LEASE AND LOAN RATING METHODOLOGY... 53

Egan-Jones /Rating Methodology

Egan-Jones
Ratings Company

Founded 1995

- FUND RATING METHODOLOGY ... 53
- PROJECT FINANCE & INFRASTRUCTURE RATING METHODOLOGY ... 53
- CREDIT TENANT LEASE TRANSCATIONS AND OTHER SECURED CORPORATE OBLIGATIONS RATING METHODOLOGY ... 53
- METHODOLOGY FOR RATING GROUND LEASE TRANSACTIONS ... 53

Egan-Jones /Rating Methodology

**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

## Introduction and Overview

This document (the Methodology) aims to provide a general description of the procedures and methodologies used to determine credit ratings; EJR consider ratings to be a shorthand means of expressing its opinion of the creditworthiness of an obligor, a specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial paper programs). (See Appendix I - Egan-Jones Rating Philosophy). Note, the Methodology is a general description which applies to all types of obligations; where there is a lack of specificity in this Methodology, EJR will use its best judgement in assigning ratings. Where appropriate, EJR takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement, and considers the currency in which obligations are denominated. An EJR credit rating is not a recommendation to purchase, sell, or hold a financial obligation. EJR's credit ratings are based on information obtained by Egan-Jones from other sources it considers to be reliable.

EJR is a 'Nationally Recognized Statistical Ratings Organization' (NRSRO) for its ratings of general corporate, financial institution and insurance sector firms. EJR does not have NRSRO status for its sovereign ratings and structured finance ratings.

EJR's credit ratings are based on the likelihood of payment, capacity, and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation, the nature of and provisions of the obligation, the protection afforded by and relative position of the obligation in the event of bankruptcy, reorganization or other arrangement under the laws of bankruptcy, and other laws affecting creditors' rights.

EJR's credit ratings are expressed in terms of default risk and pertain to the senior obligations of an entity. When junior obligations are rated, they are typically rated lower than senior obligations to reflect their lower priority in bankruptcy. Such differentiations appear when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.

Egan-Jones methodologies provide issuers, investors, and other market participants with additional insight into the rationale behind Egan-Jones' rating opinions in a transparent fashion. In addition to general business and financial risk considerations, this methodology reviews a number of rating considerations used in the Egan-Jones analysis.

In general terms, Egan-Jones ratings are opinions that reflect the creditworthiness of an issuer, a security, or an obligation. They are opinions based on an analysis of historical trends and forward-looking measurements that assess an issuer's ability and willingness to make payments on outstanding obligations (whether principal, interest, dividend, or distributions) with respect to the terms of an obligation.

Egan-Jones rating methodologies include consideration of general business and financial risk factors applicable to most industries in the corporate sector as well as industry-specific issues, regional nuances as well as other more subjective factors and intangible considerations. Egan-Jones' approach is not based

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*Founded 1995*

solely on statistical analysis but includes a combination of both quantitative and qualitative considerations.

The considerations outlined in Egan-Jones methodologies are not intended to be exhaustive. In certain cases, a major strength can compensate for a weakness and, conversely, there are cases where one weakness is so critical that it overrides the fact that the company may be strong in most other areas.

Egan-Jones rating methodologies are underpinned by a stable rating philosophy, which means that in order to minimize the rating changes due primarily to economic cycles, Egan-Jones strives to factor the impact of a cyclical economic environment into its rating as applicable. Rating revisions do occur, however, when it is clear that a structural change, either positive or negative, has transpired or appears likely to transpire in the near future.

As a framework, Egan-Jones rating methodologies consist of several components that together form the basis of the ultimate ratings assigned to individual securities. Assessments typically include the industry's business risk profile, the company's general business risk profile, the company's financial risk profile and considerations related to the specific security.

Business risk and financial risk profiles are often inter-related. The financial risk for a company must be considered along with the business risks that it faces. Egan-Jones does not have any set weightings for how these risks are considered in the final rating.

Egan-Jones' public methodologies are available on the Egan-Jones website, and in this internal methodology, the section entitled Rating the Security notes some of the key criteria areas that often apply to corporate ratings.

There are two major considerations that can have a meaningful impact on an individual company in most industry ratings: country risk and corporate governance (which includes management). These areas tend to be regarded more as potential negative issues that could result in a lower rating than otherwise would be the case.

In most cases, Egan-Jones' focus on the two areas is to ensure that the issuer in question does not have any meaningful challenges that are not readily identifiable when reviewing the other business and financial risk considerations.

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

## Limitations and Disclaimers

All EJR credit ratings and published methods are subject to certain limitations and disclaimers.

**Information:** Adequate information must be available to reach a view on the creditworthiness of the issuer, entity, or transaction in question. This includes publicly available information on the issuer, such as company financial and operational statistics, reports filed with regulatory agencies, and industry and economic reports. In addition, the rating process may incorporate data and insight gathered by EJR. If the available information appears insufficient to form a rating opinion, EJR may decide not to assign or maintain a credit rating.

**Audit:** Egan-Jones does not perform an audit in connection with any credit rating and may rely on unaudited financial information.

**Usage:** EJR’s ratings remain its property at all times, and EJR has full discretion to determine if and when to withdraw a rating. Thus, EJR can choose to withdraw a rating at any time and for any reason, for example, due to a lack of information or a lack of market interest.

**Methods:** EJR does not intend to assume, and is not assuming, any responsibility or liability to any party arising out of, or with respect to, its published ratings methodology. Its ratings methodology documents are not intended to and do not form a part of any contract with anyone, and no one shall have any right (contractual or otherwise) to enforce any of their provisions, either directly or indirectly. At its sole discretion, EJR may amend its ratings methodology documents and the processes described therein in any way and at any time as EJR may elect.

**Disclosure of Ratings:** Egan-Jones follows the applicable regulatory rules and requirements for the disclosure of ratings. Rating definitions and the terms of use of such ratings are available on the firm's website at www.EGAN-JONES.com. Published ratings, criteria, and methodologies are available from this site. Policies and procedures concerning conflicts of interest and other relevant topics are also available from this site.

Market participants are provided the opportunity to comment on the methodologies through the EJR’s website (publicly available) for EJR’s consideration.

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

## Credit Rating Types

**Commercial Paper or Short-term Ratings:** “Commercial paper” or “short-term” ratings are assigned to those obligations considered short-term in their relevant markets. In the U.S., for example, which means obligations with an original maturity of no more than 365 days (including commercial paper). Short-term ratings are also used to indicate the creditworthiness of an obligor with respect to possible “put” features on long-term obligations. Such cases result in a dual rating in which the short-term rating addresses the inherent 365-day “put” feature, in addition to the usual long-term rating. The short-term ratings are derived from the current senior rating adjusted for short-term debt net of cash compared to market capitalization. If the “net” short-term debt is minimal compared to the issuer’s market capitalization, the short-term rating is adjusted upwards to reflect the belief that risk is reduced. Medium-term notes are assigned long-term ratings.

**Long-term Ratings:** In regard to long-term ratings, EJR’s “current” rating for long-term obligations indicates EJR’s opinion of credit quality over the next 6 to 12 months, while EJR’s “projected” rating applies for longer periods and is provided optionally. Where there may be a major corporate event - such as a merger, acquisition or share repurchase - the projected rating applies in part to credit quality after the event. For example, if an obligor is currently rated “BBB,” and post-merger might be rated “A,” EJR’s projected rating might be set at “A-” to reflect the possibility that the transaction does not close. If EJR’s certainty regarding future events is particularly low, EJR may reflect that higher level of uncertainty by not issuing a projected rating. EJR may also choose not to present a project rating in some cases.

EJR derives its “watch” assignments from the differences between current and projected ratings. No difference between the two is reflected in a “stable” watch. Higher projected rating results in a “positive” or “POS” watch. Lower projected rating results in a “negative” or “NEG” watch. The absence of a projected rating is denoted by a “developing” or “DEV” watch or no watch being populated.

EJR “local” and “foreign” currency ratings pertain solely to non-NRSRO sovereign and structured finance ratings, where cross-border holdings are more common. See the “Sovereign Rating Methodology,” below, for related definitions and methodologies.

---

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

## Rating Processes, Procedures, and Policies

EJR follows standardized procedures for conducting analysis and rating committees. What follows summarizes EJR's credit rating processes, procedures, and policies.

**Proprietary Models:** EJR uses proprietary models to obtain preliminary assessments of issuer credit quality. EJR uses the same model but applying different 'industry credit ratios' for its corporate, financial institution, and insurance company ratings. For sovereign ratings, the model is not a substantial component in the process for determining the credit rating because numerous qualitative factors are more important; see the **Sovereign Ratings Methodology** section. Structured finance ratings use different models for different types of issues; see the Structured Finance Rating Methodology section.

**Peers:** For corporate, financial institution and insurance ratings, EJR compares issuers to other similar companies or 'peers' applying metrics that are relevant for making basic assessments of issuer credit quality. Peer selections reflect judgments about the most comparable firms. If a rating report on an issuer was previously published, the model lists the peers shown in the prior report. Analysts may revise or select other peers in order to improve peer comparisons or if a particular peer has been acquired or restructured. Peer revisions do not alter the industry credit ratios used in the model. In cases where an issuer has exceptional or unique qualities it may be difficult to identify or select appropriate peers and other expert analysis is used to arrive at a rating.

**Information Sources:** The first step in the ratings process is to acquire information about the issuer. For publicly traded issuers, EJR uses financial information from publicly available and recognized reliable sources such as Edgar, IMF, and others. EJR may also use the data provided from clients directly. EJR's model synthesizes the updated current information about the issuer with EJR's previously compiled data and produces an initial implied rating.

**Qualitative and Quantitative Models and Metrics and Credit Quality Ratios:** EJR analysts apply their best judgment, based on their expertise and experience, to arrive at a rating. Models alone, while very useful, cannot completely accurately capture current or projected credit quality. EJR's model usually generate financial data and 'implied ratings.' EJR's projections, when utilized, factor in expert qualitative judgments as to the likely future performance of an issuer and reflect expert estimates based upon publicly available information and current market conditions and trends. The elements of projections include assessments of specific industry conditions and general economic trends, issuer behavior and management actions, the creditworthiness of guarantors, insurers or other credit enhancement, the currencies in which the obligations are denominated, the traditional '5C' factors of credit quality (described below), and major corporate events such as mergers, acquisitions or share repurchases. For structured finance issues, the models mainly focus on the default probability and recovery rate of the underlying assets. In cases where timely and accurate data are not available for an issuer, EJR may make best effort estimates and will note such. Assigning ratings involves EJR forming its expert judgments or views about current credit quality and perhaps projected credit quality. Thus, there may be differences between the 'implied ratings' generated by the model and the final ratings assigned by EJR. Rating analysts are required to review the difference between the ratio-implied rating (or 'implied rating') and the assigned rating.

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Egan-Jones
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Regarding the credit ratios EJR uses for its analysis, they vary by industry but generally are included in EJR's rating analysis report. (Note, EJR maintains a copy of the model used to generate credit reports including the ratios and the formulas and weightings of each ratio.) On a periodic basis, the credit quality metrics are adjusted to better reflect the particular market cycle for an industry since many industries are cyclical.

**Assessment Criteria:** Egan-Jones' rating assessments apply the traditional "5C's" of credit:

- Character - the integrity of management or in the case of sovereigns, leadership, structure, and policy.
- Capacity - cash flow or liquidity for banks.
- Capital - equity cushion and structure.
- Collateral - support and enhancements of credit.
- Condition - economic and business environment conditions.

Of the 5C's, Character and Condition are the most subjective. No model can properly capture them. Experiences, and industry and market knowledges, are key.

**Indicative Ratios:** Egan-Jones credit analysis model and reports (excluding structured finance) utilize ratios as indicators of the following:

(1) The individual credit position of the issuer.
(2) Analyses of the credit ratios for various credit quality levels.
(3) A summary of peer issuers for similar industries and market capitalizations.

The implied senior credit rating is derived by comparing an obligor's position for each credit ratio to industry ratios which as reflect current and prior peer ratios. EJR industry ratios aim to adjust for the cyclicality of particular industries. The credit rating assigned by Egan-Jones reflects its view on future conditions and is not formulaic.

## Rating Review and Ratings Review and Policy Committee

EJR's rating review follows Commission's rule 17g-8(d)(1)(x) that an NRSRO rating is reviewed by other analysts, supervisors, or senior managers before a rating action is formally taken (for example, having the work reviewed through a rating committee process), and Commission's rule 17g-9(c)(2) that at least one individual with an appropriate level of experience in performing credit analysis, but not less than three years, participates in the determination of a credit rating. EJR's Ratings are reviewed by the Ratings Review and Policy Committee ("RRC") or by other analysts, supervisors, or senior managers. The RRC is comprised of seasoned rating analysts.

In the case of subscription ratings, generally, a reviewing analyst reviews ratings before publishing. A subsequent RRC review (generally comprised of 2 or more RRC members) occurs on a weekly basis as needed. All reports and ratings are reviewed along with changes in industry ratios for a particular issuer, as well as the differences between the assigned and ratio-implied ratings. Each RRC member may select items for further discussion, debate, or analysis. At the conclusion of the discussion, the RRC votes to either affirm (or not) any ratings. Should a change in rating be required, the Ratings Group will reissue the report,

Egan-Jones Ratings Company/Rating Methodology

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

usually within several business days (unless specified), and indicate that the RRC requested a change or qualifier. The RRC maintains minutes to record the identity of those attending the meeting, how each attendee voted, and a summary of the discussion. The Compliance Department ensures that subsequent amended ratings are in fact generated and published in a timely manner. On a periodic basis, the RRC members are requested to make attestations regarding compliance with EJR's Methodologies, expertise to review all credit ratings, and adherence to EJR's policies and procedures to ensure independence of RRC members.

All non-subscription ratings (which often involve private placements) are generally reviewed by the RRC, other analysts, supervisors, or senior managers before a rating action is formally taken. It occurs generally on a daily basis and may be conducted web based. To conduct the rating review, the RRC member(s) may provide their votes and comments, if applicable. Comments will be provided if the RRC's decision is different from the analyst's proposed rating. The RRC members may request a meeting for discussion as needed, and the meeting minutes will be provided. In case the rating review is conducted by other analysts, supervisors, or senior managers, if the reviewer disagrees with analyst, that reviewer or analyst may request additional RRC member(s) to review as needed. The RRC reserves the right to review, vote, and override the ratings.

The RRC may invite an alternate RRC member for rating review. If the RRC is not available for any reason such as the RRC members being tainted, absent, or lacking expertise in certain area, other analysts, supervisors, or senior managers will review ratings. RRC may also delegate other analyst(s) to perform certain rating review.

A number of RRC members may be involved in a rating review. In case where three members are voting, the majority vote will be used. In the event there is not a majority vote, the median vote of the RRC votes shall be used.

In certain prescribed instances, the RRC members may recuse themselves from the review and voting on specific issuers. Generally, this is because of a carve-out exception from the Firm's Code, or for some other identified conflict of interest, or for any other reasons. In such cases of a recusal, that recusal is documented in the RRC materials or minutes, reviewed by the Compliance Department. The RRC members may own shares in publicly traded issuers, provided that they have requested and been granted an exception from the Code by the Compliance Department. As part of this exception and in compliance with applicable NRSRO regulations related to conflicts, EJR identifies this conflict and the RRC member is not involved in the rating, approval, or supervision of that issuer's work product and rating. Any exceptions or waivers shall be evaluated and approved by the Compliance Department.

Above rules, including the recusal rules, may apply to the rating analysts and reviewers as well as to the RRC wherever is applicable.

To ensure the independence and objectivity of the rating process, the Ratings Group is required to provide a report to the RRC annually. The report provides information on those cases whereby there has been a significant change of ratings during the year and identifies cases whereby the assigned ratings differ from the rating implied by the credit analysis models. Via such reviews, the RRC members are provided with an

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

opportunity to ask the Ratings Group detailed questions about the operation of the rating process and to provide input on how the process can be enhanced.

Rating review and essential supporting information shall be documented. The RRC oversees the rating review process to ensure that the rating review is adequate for issuing ratings with quality and integrity. The RRC reports to the Board.

## Non-Public Information

EJR might obtain material non-public information during the process of assigning or reviewing ratings. EJR has strict policies for maintaining such information as confidential.

## Issuer and Client Appeals

Excluding ratings generated for subscribers or private ratings, EJR generally does not provide issuers with their ratings unless requested, whereupon the published rating is provided if the issuer releases EJR from liability related to EJR's rating. If an issuer or a client (subscriber, private placement client, or third-party client, as applicable) disagrees with an EJR rating, EJR requests that they provide written support for their objection including any relevant materials and such information will be shared with the RRC. Depending on the decision of the RRC, EJR might re-issue its rating report.

## Initiating, Monitoring, Reviewing, and Updating Ratings

In general, for the majority of corporate credits, EJR's credit analysts review and update ratings on a quarterly, semi-annual, or annual basis, generally triggered by earnings releases. Ratings for the corporate, financial, and insurance issuers are updated on at least an annual basis upon availability of data. EJR's sovereign and structured ratings are updated on an as-needed basis. Ongoing monitoring of current news and events may trigger off-cycle reviews. The Ratings Group has discretion to choose to initiate new coverage on companies deemed by Egan-Jones or clients to be of interest or that appear in news reports and analyses, earnings releases, or other publicly available information. As described above, the firm uses an integrated model which compares the publicly available financial information for both initial and ongoing ratings analyses. The data used in the model are sourced from widely used data providers which obtain their information from issuers. Since the data-providers have been vetted by numerous users, EJR generally does not independently verify data from well recognized providers. For a private rating, the client may provide the confidential data to EJR.

EJR regularly monitors news events to assess whether developments may impact rated issuers. Additionally, for its corporate, financial industry, and insurance ratings, EJR uses a monthly quantitative screen, the 'Rating Change Anticipator' or 'RCA' to identify possible changes in credit quality. Issuers with significant changes in their RCA scores are often added to the list of companies for updated reports. Changes to the underlying model are propagated forward only; EJR generally does not back-rate using updated models drawing on older data.

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## Country Risk Issues

Governments often intervene in their economies and occasionally make substantial changes that can significantly affect a company's ability to meet its financial obligations. Therefore, considerations include the company's main location or country of operation, the extent of government intervention and support and the degree of economic and political stability. As such, the sovereign rating itself may in some cases be a limiting factor in an entity's rating, particularly when the sovereign has a lower rating, and the entity does not have meaningful diversification outside its domestic economy.

## Corporate Governance Issues

Effective corporate governance requires a healthy tension between management, the board of directors and the public. There is no single approach that will be optimal for all companies. A good board will have a profound impact on a company. In cases where Egan-Jones believes corporate governance is inadequate, it attempts to flag short-comings.

## Business and Industry Risk Issues

### Business Risk Profile

In many cases, Egan-Jones will determine the issuer rating for an entity (see the Appendix II for the definition of issuer rating) through a three-stage process as shown in the diagram that follows.

In evaluating the issuer, it is useful to consider industry risk issues such as:

- Profitability and cash flow
- Competitive landscape
- Stability
- Regulation
- Other inherent industry considerations

Although there is an overlap in some instances, Egan-Jones has found that considering these five measures in a separate fashion is a useful way of approaching this analysis.

Using the same factors across different industries provides a common base with which to compare the business risks of various industries, even when they are distinctly different. In all cases, Egan-Jones uses historical performance and its own experience to determine an opinion on the future, which is the primary focus.

It is important to note that any ratings for company-specific business and financial risks should not be taken as final issuer ratings. For example, an individual company may fit into the "A" range with respect to the analysis of its business risk, but its financial metrics could be more in the "BB" category. It would be incorrect to believe that the final issuer rating in this case would be either "A" or "BB." In determining the final issuer rating, both of these two major areas must be considered.

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# Major Considerations for the Rating Analysis

Stage 1: Industry Business Risk Analysis

(Consider the overall business risk for the industry)

![img-0.jpeg](img-0.jpeg)

Stage 2: Issuer Rating

Consider the strength of the individual issuer:

- (a) assess the company's business risk compared with the industry's,
- (b) assess the company's financial risk, and
- (c) combined, these factors will determine the company's issuer rating.

![img-1.jpeg](img-1.jpeg)

Stage 3: Rating the Security

Consider covenant and ranking issues that exist for specific securities, using the issuer rating to determine specific security ratings.

![img-2.jpeg](img-2.jpeg)

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The following provides some examples of the type of aspects that Egan-Jones could consider in the analysis of the five noted areas. All comments in the following sections are for illustrative purposes. The actual areas of consideration will be determined as those that are most applicable to the specific industry and credit being analyzed.

Industry Profitability and Cash Flow

- Breadth of product line and product differentiation (commodity versus brand).
- Benefits of economies of scale and size in operations.
- Concentration risk of customers and suppliers.
- Cost and availability of production inputs.
- Labor relations conditions - the likely future availability and cost of labor.
- Organic growth potential of the industry (i.e., expanding or contracting).
- Sensitivity to energy and transportation costs and capital intensity.
- Are costs heavily fixed or variable and which reduced if needed?
- Efficiency of production processes and equipment.

Industry Competitive Conditions

- The level of barriers to entry into the industry. Is regulation or national security a factor in restricting competition?
- Is the industry dominated by a few large producers or is it fragmented?
- Is unique technology or a unique blend of labor required?
- Does the industry serve local markets, or does it serve national or global markets where it is subject to more competition?

Industry Stability

- How economy-sensitive are sales and earnings and how much do they fluctuate in a recession?
- Is there any seasonality in sales? Seasonal sales create issues with working capital and short-term debt levels.
- Consider overall industry capacity versus market demand.
- Is it necessary to accumulate large inventories for sales throughout a cycle?
- What is the producer discipline with respect to volume and pricing objectives?

Industry Regulation

- Is the industry heavily regulated?
- Do trends in regulation create a threat to the targeted credit?
- Does regulation restrict future market entry?

Other Industry Considerations

- Buyer Behavior - are buyer tastes changing?
- Technology - does the credit face a threat or opportunity from changes in technology?
- Such as obsolescence, product substitution, labor disputes and change in consumer preference in the industry?
- Shifts in industry players - whether the nature of the industry changes as a result of the entry or exit of major industry participants.

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# Financial Risk Issues

# Overview

- The graphic below is a visual display of financial risk profile considerations.
- Adjustments in key ratios for risks related to a variety of areas. In some cases, a relationship with a parent or associated company will also be important.
- While past metrics are important, any final rating will incorporate Egan-Jones' opinion on future metrics, a subjective but critical consideration.
- The financial ratios for an entity can be influenced by both accounting methods such as Generally Accepted Accounting Principles (GAAP) and International Financial Reporting Standards (IFRS) and therefore might need adjustment.

# Key Financial Risk Metrics

![img-3.jpeg](img-3.jpeg)

The following financial considerations are typically part of the analysis for corporate credits. Since it is not possible to completely separate business and financial risks, many of the following financial considerations are typically part of the analysis for corporate credits. Since it is not possible to completely separate business and financial risks, many of the following "typical ratios" will relate to both areas. The typical ratios in this section represent some of the more common key metrics used by Egan-Jones for corporate credits, but there will be cases where a ratio may be less relevant for the credit being considered and as such, the ratios identified below should be considered as examples. The Egan-Jones report will provide more information on the ratios that are considered as most important for the individual credit.

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# Earnings

Egan-Jones earnings analysis focuses on core earnings or earnings before non-recurring items and, in doing so, considers issues such as the sources, mix and quality of revenue; the volatility or stability of revenue; the underlying cost base (e.g., the company is a low-cost producer); optimal product pricing; and potential growth opportunities. Accordingly, earnings as presented in the financial statements are often adjusted for non-recurring items or items not considered part of ongoing operations.

# Typical Earnings Ratios

- EBIT margin.
- EBIT interest coverage.
- EBITDA interest coverage.
- Net margin.
- Return on equity.
- Return on capital.

# Cash Flow and Coverage

- Egan-Jones cash flow analysis focuses on the core ability of the company to generate cash flow to service current debt obligations and other cash requirements as well as on the future direction of cash flow. From a credit analysis perspective, insufficient cash sources can create financial flexibility problems, even though net income metrics may be favorable.
- Egan-Jones evaluates the sustainability and quality of a company's core cash flow by focusing on cash flow from operations and free cash flow before and after working capital changes. Using core or normalized earnings as a base, Egan-Jones adjusts cash flow from operations for as many non-recurring items as relevant. As with earnings, the impact that non-core factors have on cash flow may also be an important reality.
- In terms of outlook, Egan-Jones focuses on the projected free cash flow, the liquidity and coverage ratios and the company's ability to internally versus externally fund debt reduction, future capital expenditures and dividend and/or stock repurchase programs, as applicable.

# Typical Cash Flow Ratios

- Cash flow-to-debt.
- Adjusted cash flow-to-adjusted debt.
- Cash flow-to-net debt.
- Adjusted cash flow-to-adjusted net debt.
- Debt-to-EBITDA.

# Balance Sheet and Financial Flexibility Considerations

- As part of determining the overall financial risk profile, Egan-Jones evaluates various other factors to measure the strength and quality of the company's assets and its financial flexibility. From a balance-sheet perspective, Egan-Jones focuses on the quality and composition of assets, including

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goodwill and other intangibles; off-balance-sheet risk; and capital considerations such as the quality of capital, leverage, asset quality and the ability to raise new capital.

- Egan-Jones also reviews the company's strategies for growth, including capital expenditures and plans for maintenance or expansion, and the expected source of funding for these requirements, including bank lines and related covenants. Where the numbers are considered significant and the adjustments would meaningfully affect the credit analysis, Egan-Jones adjusts certain ratios for items such as operating leases, derivatives, securitizations, hybrid issues, off-balance-sheet liabilities, and various other accounting issues.

# Typical Balance-Sheet Ratios

- Current ratio
- Non-monetary working capital
- Inventory turnover (days)
- Debt-to-EBITDA
- Debt-to-capital
- Adjusted debt-to-capital
- Net debt-to-capital

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## Rating the Security

With respect to Stage 3 as noted in the first diagram above, the following comments describe how the issuer rating is used to determine ratings on individual securities:

- Egan-Jones uses a hierarchy in rating long-term debt that affects issuers that have classes of debt that do not rank equally. In most cases, lower-ranking classes would receive a lower Egan-Jones rating. For more detail on this subject, please refer to Appendix 1, Egan-Jones' Rating Philosophy.
- In some cases, issued debt is secured by collateral. This is more typical in the non-investment-grade spectrum. In such cases, Egan-Jones evaluates the likely credit support and adjusts its rating to reflect such support.
- For information on guarantees and support, please refer to Appendix 3.
- The existence of holding companies can have a meaningful impact on individual security ratings. For such situations, Egan-Jones more detail on this subject, please refer to the criteria Appendix 4, Rating Holding Companies and Their Subsidiaries.
- For information on preferred and hybrid considerations, please refer to the appendix, Egan-Jones Criteria: Preferred Share and Hybrid Criteria for Corporate Issuers.

## Additional Comments relating primarily to Corporate Obligors

EJR's Corporate Methodology utilizes its overall Methodology described above, the "5C's", and is also forward thinking. In addition to the considerations described in the above paragraphs, EJR attempts to gauge the obligor's ability to adjust to prospective events. Among the questions EJR considers are the following: How dynamic is management and is it adaptable to changing business environmental and economic conditions? How do management decisions affect credit quality? Do mergers actually fit? Potential adverse impacts of stock re-purchases on a company's liquidity position and whether it is financed by cash on hand or does a company have to issue additional debt to achieve the purpose?

From a quantitative perspective, EJR focuses on an obligor's ability to meet debt service obligations and the relative strength of coverage, and the robustness of the cash flow. Past results are not always predictive; most creditors are focused on prospective results. EJR's analysis scores a company's recent results with what is called an "implied rating," and forward projections include the same. However, the "implied rating" only gets one part of the way there. The qualitative factors previously mentioned carry significant weight in determining a company's prospective credit quality.

In the case of announced or likely share repurchases, EJR uses its best judgment to estimate the likely share repurchases over several years and reflects such judgment in the assumptions used for forecasting financial statements. A share repurchase would reduce cash and/or increase debt and reduce shareholders' equity. In the case of merger and acquisition announcement, EJR attempts to determine the expected funding for a pending transaction and reflect the impact in its projections. EJR's report normally calculates the combined trailing twelve months (TTM) operating income of the two firms and

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their combined TTM interest expense reflecting estimates of additional funding cost. In cases of a share-for-share combination, there would be no transaction-related additional funding costs.

Depending on economic cycles, buyout risks may be a significant concern. In the event of a buyout, credit quality could decline several full letter grades. While buyouts are often difficult to predict, EJR attempts to evaluate the feasibility of a buyout, and in turn, the impact on credit quality and ratings. In performing its buyout analysis, EJR attempts to make reasonable assumptions concerning the cost and availability of funds and any resulting increase in leverage as would impact upon credit quality. The vulnerability to buyouts varies by industry and the potential threat to any particular firm's credit quality may vary dramatically.

Assigned ratings reflect times of economic stress and restricted capital availability. Firms having high operating and financial leverage are often more vulnerable, while utility-type firms are often in better shape. On the other hand, when economic stresses diminish, firms with higher operating and financial leverage often enjoy greater improvement.

EJR's process for assigning ratings are consistent with the EJR Code of Conduct (previously EJR Code of Ethics), Compliance Manual, and documented in detail via EJR's published methodologies and its internal policies and procedures. The Rating Process above addresses EJR's general approach to initiating and monitoring ratings, review by the RRC, and updating of ratings.

## Additional Comments Related Solely to Financial Obligors

The Egan-Jones finance rating methodology revolves around the traditional

"CAMEL" analysis employed by seasoned bank analysts over the decades. Those characteristics are:

- Capital - equity cushion that is not diluted by unreserved, nonperforming assets.
- Asset Quality - the quality of the financial institutions assets typically measured by the lack of non-performing assets, nonaccrual assets, and corresponding reserve coverage. Typically, EJR considers restructured loans (as opposed to simple refinancing) in reserve coverage ratios.
- Management - the integrity of management including business practices, quality of public disclosures, and corporate governance.
- Earnings - the level of earnings and most importantly, the quality of earnings.
- Liquidity - asset liquidity in effect (i.e., the measure of how long an institution can last in a period of distress and its ability to quickly liquidate assets to meet obligations).

Excluding "Management," the above characteristics are primarily quantitative characteristics, but each has some qualitative components. In the case of asset quality, the level of reserve coverage and the institution's success in restructuring loans are relevant to overall asset quality.

Earnings are another factor that has some qualitative characteristics. Institutions that do not attempt to manage earnings are generally viewed favorably. EJR heavily stresses a bank's quality of earnings. Where there is organic profitability growth or is profitability generated through nontraditional banking activities

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or outright accounting gymnastics.

The quality of a financial institution’s management team can be determined by the quality of the results as well as the timeliness and thoroughness of public disclosures. Weak management teams tend to employ high levels of “window dressing” to give the illusion of profitability. Also, financial institutions which significantly under-reserve or which are quick to reclassify loans to performing are generally viewed negatively.

In asset quality-related issues, EJR applies a strict reserve coverage rule. Typically, if a bank’s coverage of non-performers (including past dues and restructured credits) is lower than 90% it is viewed negatively. Reserve shortfalls do dilute a bank’s equity, and EJR looks at the true capital picture (including equity dilution if any) of a bank and makes its assessment accordingly.

On Capital, EJR considers whether a bank can organically grow capital and whether real earnings are sufficient for adequate internal capital generation.

EJR’s process for assigning ratings are consistent with the EJR Ratings Code of Conduct and documented in detail in a combination of the EJR’s published methodologies and its internal policies and procedures. The Rating Process above addresses EJR’s general approach to initiating and monitoring ratings, review by the RRC, and updating of ratings. To ensure the independence and objectivity of the rating process, the chief credit officer (CCO) is required to provide a report to the RRC of EJR annually. The report provides the members an opportunity to ask the CCO detailed questions about the operation of the rating process and to provide input on how the process may be enhanced.

## Additional Comments Related Solely to Insurance Obligors

Egan-Jones takes the view that insurance obligors have the characteristics of both corporate and financial institution obligors. Like corporate obligors, insurance firms must effectively manage their books of business so as to maintain and enhance their business positions and properly charge for the insurance they issue. Like financial obligors, the quality of assets and liabilities is critical to insurance companies to ensure that obligations can be met. The largest recent failures in the insurance industry have been attributed to less diversified and poorly assessed risks associated with structured assets.

Egan-Jones views claims-paying obligations as senior to senior unsecured debt obligations. In the event of financial stress, state insurance regulators (the primary regulators for insurance firms based in the US) will customarily treat claims holders as senior to debt holders. Furthermore, based on its actions in the Ambac case, the Wisconsin regulator treated the holders of credit default obligations as subordinated to the holders of Ambac’s traditional product of municipal bond insurance. It is not apparent that the unequal treatment was caused by a retail / institution split, since the holders of both types of insurance were heavily represented by institutional investors. Perhaps the more relevant distinction is that one type of insurance (mortgage and credit default support) was underpriced and under-reserved, while municipal debt obligations experienced minimal defaults.

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The duration or tenor of claims (and thus claims paying ability) can be, but is not always, shorter than for senior unsecured debt. Basically, it depends on the type of claim. In the event of an insurance company's financial collapse, however, the state regulators overseeing rehabilitation process will treat holders of insurance in a manner senior to that of debt holders.

In rating claims-paying ability, EJR adjusts its initial senior unsecured rating to reflect financial flexibility. The ratings categories are the same as those used for the senior unsecured ratings.

EJR's method for assigning ratings is consistent with the EJR Ratings Code of Conduct and documented in detail in a combination of the EJR's published methodologies and its internal policies and procedures. The Rating Process above addresses EJR's general approach to initiating and monitoring ratings, review by the RRC, and updating of ratings.

## Sovereign and Structured Finance (Non-NRSRO Ratings)

As part of a settlement offer, Egan-Jones agreed to the revocation of its NRSRO registrations for the classes of (a) issuers of asset-backed securities and (b) issuers of government, municipal and foreign government securities. Egan-Jones consented to the issuance of the Order by the Commission, without admitting or denying the findings set forth in the Order. The firm's prior ratings for Sovereign and Structured Finance debt are separated on its website to clearly indicate that the ratings are non-NRSRO. EJR will continue to rate Sovereign and Structured Finance debt, but such ratings will be clearly marked as non-NRSRO.

Egan-Jones expects to reapply for NRSRO licenses to rate Sovereign and Structured Finance debt after eighteen months. Egan-Jones NRSRO status licenses for Corporate, Financial Industry and Insurance Companies are not affected by the settlement of the regulatory action.

## Sovereign Rating Methodology (Non-NRSRO)

**Scope and Limitations:** Sovereign Issuer Credit Quality Ratings (CQR) are a forward-looking assessment of a sovereign's capacity and willingness to honor its existing and future obligations in full and on time. Sovereigns are assigned two CQRs: a Local-Currency CQR, which reflects the likelihood of default on debt issued and payable in the currency of the sovereign, and a Foreign-Currency CQR, which is an assessment of the credit risk associated with debt issued and payable in foreign currencies.

**Key Rating Drivers:** EJR's approach to sovereign risk analysis is a synthesis of quantitative and qualitative judgments. The quantitative factors EJR uses are:

- Debt in relation to GDP.
- Surplus or deficit in relation to GDP.
- Debt plus potential under-funding of major banks in relation to GDP.
- Interest expense in relation to taxes.
- GDP growth.
- Foreign reserves in relation to debt.

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Debt levels for many sovereign issuers have increased at an accelerating rate over the past decade, affecting implied ratings. EJR also considers unemployment levels and funding costs.

EJR recognizes that no model can fully capture all the relevant influences on sovereign creditworthiness, meaning that the sovereign ratings can and do differ from those implied by the rating model. Some of the qualitative factors that impact its ultimate assessment of credit quality include the flexibility, stability and overall strength of the economy, efficiency of tax collection, acceptance of contract law, ease of doing business, trade balances, prospects for future growth and health and monetary policy, and economic freedom. These subjective and dynamic qualitative issues are not captured by the model but affect sovereign ratings.

**Country Risk versus Sovereign Risk:** Country risk and sovereign CQR are related but distinct concepts. The former refers to the risks associated with doing business in a particular country, while sovereign CQR's more narrowly focus on the risk of a government defaulting on its debt obligations. Risks to doing business may include weak property rights, unpredictable tax and legal regimes, volatile operating environments, and currency conversion risks.

**Defining a Sovereign:** From a rating perspective, a sovereign issuer is a government (usually national or federal) that de facto exercises primary authority over a recognized jurisdiction. Central banks, like other public policy institutions, are agents of the sovereign, though their debt could be assigned ratings that differ from those of the sovereign. Because the sovereign is the highest authority and has the power to enforce its will in the jurisdiction it governs, creditors have limited legal or other recourse in the event that the sovereign is unable or unwilling to service its debt. This is also the case at the international level, given the limitations of international law and its enforceability with respect to sovereign nations. Consequently, whether in terms of local- or foreign-currency debt, the analysis of sovereign credit risk must consider willingness to pay, as well as financial capacity.

**Sovereign Debt and Default:** EJR's sovereign CQR relates to the probability of default on debt owed to private creditors, particularly debt issued in public markets. Failure to honor a debt obligation or an unequivocal guarantee would be considered a rating event. If the affected debt is material relative to the total amount of sovereign debt, the sovereign's CQR could be lowered to Default ('D'). Default by a wholly state-owned and/or -controlled issuer generally would not be considered to be a sovereign default event, even if the default is a direct result of actions by the sovereign. The sovereign's liability, like that of any other shareholder, is limited and does not extend to ensuring that all creditors are made good. Payment defaults on sovereign debt obligations owed to private creditors (e.g., loans to the sovereign by commercial banks) would result in the CQR being lowered to 'D.' Similarly, if a rated sovereign's debt is subject to a stressed debt exchange (SDE), a 'D' rating would probably be assigned. Shortly following effective date of an SDE, the sovereign CQR would likely be lifted out of 'D' to a rating appropriate for its prospects on a forward-looking basis. In contrast, agreed debt relief actions to expunge debt by international financial institutions are generally viewed as positive developments for sovereign creditworthiness and CQR's.

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**Local versus Foreign Currency CQR's:** EJR assigns Local and Foreign Currency CQR's to sovereigns according to its published rating definitions. Compared with non-sovereign entities that are subject to bankruptcy, the sovereign has greater scope to default selectively. From a sovereign credit perspective, the distinction between foreign and local obligations (in terms of currency denomination of debt) is particularly important. The markets in which debt is issued and the character of holders (e.g., resident versus non-resident) are also factors. A Local Currency Ratings may register above Foreign Currency Ratings reflecting the sovereign's greater access to local currency.

Tax and other receipts are generally made in local currency and most sovereigns in theory could print currency to fund themselves. Many sovereigns have preferential access to domestic capital markets which may be a more reliable source of funding than international capital markets, especially during periods of distress. A sovereign may choose not to default on limited foreign debt even as it restructures its local-currency debt. Many sovereigns receive most of their income in local currency and their ability to repay foreign currency denominated debt depends on capacity to generate foreign currency and the market's willingness exchange foreign for local currency.

**Peer Analysis:** Indicators of sovereign creditworthiness are compared across countries and over time using peers selected by Egan-Jones using its best judgment for a range of credit quality factors. However, there is not a simple linear relationship between sovereign ratings and every metric that EJR considers in its rating analysis. It also reflects qualitative factors that influence the ability and willingness of a sovereign to honor its financial obligations. These intangible influences on sovereign creditworthiness in part explain why so-called advanced economies are able to sustain much higher debt burden. These factors include strong institutions; respect for the rule of law and property rights; stable and flexible political systems; wealthy and diversified economies; and financing flexibility. Advanced economies are typically less prone to shocks. These strengths greatly enhance the capacity of the sovereign to tolerate greater debt burden and hence tend to be associated with higher sovereign credit ratings.

**Global Reserve Currency Country (GRCC):** A country whose currency is recognized in all major markets as the global reserve currency (the GRCC) has a different status from other sovereign issuers. In this respect, it has no clear 'peers.' Such a country enjoys greater financial flexibility and can maintain significantly greater nominal debt loads than other non-global reserve countries. EJR shares the opinion, for example, that England enjoyed GRCC status for about two centuries, from 1730 to 1930. Currently, only the United States unambiguously holds GRCC status. In practical terms, on a prospective basis, the foreign and local currency obligations of GRCC status countries are undifferentiated.

**Surveillance:** All rated sovereigns are subject to ongoing surveillance to ensure that ratings remain accurate. Sovereign credit quality tends to change more slowly than credit quality in other areas, so updates for sovereigns are generally less frequent. EJR aims to update its sovereign CQR's periodically.

**Structural Features:** Economies with higher domestic savings relative to GDP are generally more agile in responding to shocks. Openness to international flows of investment and trade, and effective legal and institutional mechanisms are also positive factors. These economies tend to suffer smaller output losses and less variability in tax receipts and government expenditure demands. The sovereigns of economies that exhibit such structural characteristics tend to be more highly rated than those that are more rigid and less able absorb shocks.

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**Political Risk:** In the context of sovereign credit analysis, political risk refers to the political capacity of the sovereign to mobilize resources as necessary in order to honor their financial obligations. Rule of law and respect for property rights provide confidence that political and civil institutions have strong commitment and capacity to honor financial obligations.

Political risk factors relevant to sovereign creditworthiness include the legitimacy of the political regime, effectiveness of government to formulate and implement credible policies, suppression of corruption, and assessments as to the likelihood of civil conflict and war. Political and social tensions bear importantly on sovereign creditworthiness. A high degree of consensus among the body politic on major social and economic issues is associated with stable and predictable economic policies. Conversely, countries riven by divisions along lines of income distribution, race, religion, or regional differences tend to encounter greater challenges to authority, which may undermine effective economic and financial policymaking. Powerful vested interests may block essential structural reforms. Relations with the international community and major global or regional powers may also influence the sovereign risk assessment. Unwillingness or inability to obtain policy-conditional financing from international financial institutions (IFIs) such as the IMF narrows sovereign financing options and negatively influences the sovereign credit ratings. By contrast, well designed and internationally funded economic programs can stabilize local financial markets, normalize private capital flows, and lay foundations for sustained recovery. Nonetheless, emergency financial support from the IFIs is a sign of distress indicating that the sovereign credit profile and rating have deteriorated in the months leading to the arrival of external assistance.

**Banking Sector:** A sound, well supervised and regulated banking and financial system is a positive sovereign rating factor. The direct financial risks to the sovereign's creditworthiness reduced, and economic performance is enhanced. An efficient and effective financial system encourages domestic savings and investment and may offer a less expensive alternative to international capital markets as a source of funding.

There are two principal risks posed to sovereign creditworthiness by the domestic banking sector: macroeconomic instability and contingent liability. The recapitalizations of weak banking systems have historically resulted in significant increases in government debt burdens. Risks to macroeconomic stability rise when weak banking systems amplify rather than absorb shocks to the economy, for example by exacerbating exchange rate over-shooting in response to external shocks due to currency mismatches on bank balance sheets. The failure of a single large bank can result in a collapse in confidence in the whole system, prompting deposit and capital flight and disrupting the ability of the sovereign to finance itself in domestic and international financial markets.

Government intervention to prevent systemic bank failure is the rule. This intervention often goes beyond supervision and regulation to include financial support and possibly the nationalization of bank liabilities to ensure the solvency of the system. The capacity of the sovereign to intervene in support of the banking sector without materially impairing its own creditworthiness is a function of the credibility of the central bank as a lender of last resort and the capacity of the government to absorb domestic banking and financial-sector liabilities without threatening its own solvency and financing capacity. EJR analyses measures the underfunding of banks and adjusts the sovereign debt and credit rating for any underfunding.

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**Direct and Indirect Debt or Liabilities:** EJR's main measures of sovereign indebtedness are gross general government debt, as defined by the IMF. EJR's view is that gross government debt is the most relevant and comprehensive measure of sovereign indebtedness and the one that lends itself best to cross-sovereign comparative analysis. The contingent liabilities of governments are many and varied, ranging from expectations or commitments for pension and healthcare programs to infrastructure investment arising from years of public under-investment. Such exposures are considered indirectly.

**Capital Market Access:** A sovereign's ability to fund itself at sustainable yields is critical. During times of stress, the willingness and terms granted by other country central bankers for such funding often becomes a driving factor in the short run for determining credit quality. This assessment is reflected in EJR's analysis of sovereign debt dynamics in determining whether a particular sovereign can retain or restore market access at sustainable yields.

In times of crisis or market stress, the loss of bond market access and policy-conditional external support for sovereign issuers are not consistent with the maintenance of high Investment grade ratings. High levels of financial intermediation indicated by measures such as domestic credit and broad money to GDP are often associated with a greater capacity to sustain and fund a given domestic debt burden. Similarly, countries with high rates of domestic savings are, other things being equal, able to sustain larger fiscal imbalances and debt load than low-savings economies where government borrowing can quickly absorb domestic savings leading the sovereign and the private sector to have to borrow externally. A proven track record of access to funding from international capital markets is a positive rating factor.

## Sovereign Rating Model - Key Variables and Ratios

- • **Debt:** Short term and long-term direct debt of the sovereign as defined by the IMF
- • **GDP:** Nominal (i.e., not adjusted for inflation) Gross Domestic Product as reported by the country. Note, periodically, there are slight changes in the definitions of the GDP as reported by countries, but few significantly skew the overall sovereign analysis.
- • **Government Surplus or Deficit as a Percentage of GDP:** The ratio of government deficit, defined as the general government deficit or surplus divided by the nominal GDP. For reported periods, in the EU, this figure is provided by Eurostat or other reliable data sources.
- • **Adjusted Debt:** 'Debt' (above) adjusted by EJR's estimate of the capital shortfall of the country's 10 largest banks. Generally, such a shortfall is determined by summing of the 10 largest banks' assets, multiplying 10%, and reducing the product by the sum of the banks' market capitalization. (The concept is that the market capitalization of each bank should equal or exceed 10% of total assets.)
- • **Adjusted Debt to GDP:** 'Adjusted Debt' divided by the 'GDP.'
- • **Interest Expense:** The interest expense reported by the sovereign entity in its financial reports. Some of the reported interest expense might be non-cash.
- • **Taxes:** The total tax receipts reported by the sovereign. Tax receipts generally do not include social, healthcare, and other receipts reported by the sovereign.
- • **Interest Expense to Taxes:** 'Interest Expense' divided by 'Taxes.'
- • **GDP Growth:** The annual increase in nominal 'GDP.'

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- **Foreign Reserves:** The balance of a sovereign's foreign reserves as reported to Eurostat and other statistical data sources.
- **Foreign Reserves to Debt:** "Foreign Reserves" divided by "Debt."

## Copyright and Disclaimer

Copyright © 2019 by Egan-Jones Ratings Co. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings, EJR relies on factual information it receives from issuers and underwriters and from other sources EJR believes to be credible. In issuing its ratings EJR must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings can be affected by future events or conditions that were not anticipated at the time a rating was issued or affirmed.

The information in this report is provided as is without any representation or warranty of any kind. An EJR rating is an opinion as to the creditworthiness of a security. This opinion is based on established criteria and methodologies that EJR is continuously evaluating and updating. Therefore, ratings are the collective work product of EJR. The rating does not address the risk of loss due to risks other than credit risk unless such risk is specifically mentioned. EJR is not engaged in the offer or sale of any security. All EJR reports have shared authorship. A report providing an EJR rating is neither a prospectus nor a substitute for the information assembled, verified, and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of EJR. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. The assignment, publication, or dissemination of a rating by EJR shall not constitute consent by EJR to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction.

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## APPENDIX 1 EGAN-JONES'S RATING PHILOSOPHY

### THE DEFINITION OF A 'RATING'

In general terms, ratings are opinions that reflect the creditworthiness of an issuer, a security, or an obligation. Creditworthiness is determined by assessing coverage of the estimated loss via current and forward-looking measurements that assess an issuer's ability and willingness to make payments on ultimate obligations (including principal, interest, dividend, or other types of distributions) per the terms of an obligation. Ratings for structured finance vehicles reflect an opinion of the ability of the pooled assets to fund repayment to investors according to each security's stated payment obligation. Ratings are opinions based on the quantitative and qualitative analysis of information sourced and received by Egan-Jones, which information is not audited or verified by Egan-Jones. Ratings are not buy, hold, or sell recommendations and do not address the market price of a security. Ratings may be upgraded, downgraded, placed under review, confirmed, and discontinued. The following outline three important base principles underlying Egan-Jones Corporate ratings:

### STABLE RATING PHILOSOPHY

Egan-Jones believes that there is more value to the investor when a rating does not fluctuate purely with the fortunes of the economy. Therefore, Egan-Jones strives to look through the cycles when considering the impact of economic cyclicality. In short, Egan-Jones emphasizes the differences between structural versus cyclical changes.

The economic environment will impact the performance of most issuers which Egan-Jones rates and since the growth rate of the economy is continually changing, so too is its impact on issuers. Egan-Jones approaches the reality of a cyclical economic environment by employing a rating philosophy which emphasizes stability. Hence, a company which is heavily impacted by a cyclical environment will generally be assigned a lower rating to reflect this factor, all else being equal. While the future will likely look good during an upturn and bleak during a downturn, the rating effectively captures this volatility. While there may be instances when a period of protracted economic growth or contraction impacts the fortunes of an entity and a rating change required, Egan-Jones seeks to minimize rating changes which are due primarily to global economic changes. The goal of each rating is to provide a forward-looking assessment of the credit quality of the issuer. Consequently, Egan-Jones takes a longer-term 'through the cycle' view of the issuer and as such, rating changes are not based solely on normal cycles in the economy. Rating revisions do occur when it is clear that a structural change, either positive or negative, has transpired or appears likely to transpire in the future. The most difficult period of assessment for a rating agency is the latter stages of a long/deep recession, particularly if it was much worse than originally expected. The recession may cause structural changes in industrial sectors; the financial strength of governments, businesses, and individuals; and the attitudes of taxpayers or residents. It is at this stage that some ratings may appear to 'lag' the economic cycle and further rating actions may occur.

### HIERARCHY PRINCIPLE

In rating long-term debt, Egan-Jones considers the ranking of the debt relative to issuer obligations noting that the starting point for such ranking is the most senior level of debt. When issuers have classes of debt

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that do not rank equally, in most cases, lower ranking classes would receive a lower Egan-Jones rating. In the investment grade sector, the difference between a debt class and the immediate junior ranking obligation is typically no more than one rating notch. For non-investment grade ratings, the rating differential is one or more rating notch, due largely to the increased importance of recovery expectations. In general, lower ranking debt will receive a lower rating than prior ranking debt. The following sets out some exceptions to this general guideline:

1. Where there is little debt outstanding in one category and Egan-Jones has a degree of comfort that the issuer will not be increasing the debt in this category in the future, Egan-Jones may assign the same rating to the debt in the next subordinated ranking category.
2. Egan-Jones may consider different levels of ranking debt to have similar default risk and thus assign the same rating to each. Generally, Egan-Jones takes off one rating notch for each level of subordination. Egan-Jones may consider increasing the gap between levels of debt by more than one-rating level. The most common considerations for this action would include:
   a. Where the senior debt is a non-investment grade rating, it may be appropriate to increase the relative gap as the chances of the issuer being involved in a default situation are higher relative to better rated issuers.
   b. Where there is a large amount of lower ranking subordinated debt, the holders of this debt may be taking on significantly more risk than would be the case with senior debt holders.
   c. Major benefits or detractions from a covenant standpoint.

Periodically, EJR is asked to evaluate instruments which are neither fixed income nor preferred stock-like but rather are more equity-like with no set obligation for the return on capital (i.e., via a coupon or set dividend). Similarly, the instrument might not have a set maturity date. While both these features can be in fixed income or preferred stock instruments, they are less prevalent; in the case of debt, the United Kingdom has been a long-time issuer of sovereigns, which have no maturity date, nor do perpetual preferred shares. Similarly, a debt instrument can be zero or under certain economic conditions may even have a negative coupon and preferred dividends can be cumulative. Despite these features, there are some basic assumptions, which can be made to provide investors a guide to address what they are typically seeking: an opinion regarding the likelihood that they will receive a return of capital and a reasonable return on that capital. For example, the subordinated slices of capital typically would expect a return on capital in excess of that received by senior slices. Additionally, the expected loss would typically be higher, and the corresponding rating would be lower for subordinated slices of capital. (See above comments.) Entities which carry one or a couple of assets whose credit quality can readily be ascertained, carry over the characteristics to the right side of the balance sheet.

For obligations, which primarily rely on future cashflows, EJR will evaluate whether the future cashflows will be sufficient to satisfy the rated obligations. Information considered in EJR's rating process typically include variability, historical performance, key risks driving the cashflow, cushion as indicated by coverage ratios, manager expertise, and capital structure. EJR will typically calculate the expected loss (EL) by the term of rated obligations and use its EL table to derive an EL implied rating. Examples of future cashflow include a stream of lease payments from operating assets, or collection of cashflow from charged-off receivables, franchise payments, and patent/royalty payments. Regarding terminal value of assets, in the

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absence of reasonable benchmarks, sensitivity analysis will be conducting around entry valuations for assets.

In some cases, the sale of assets is the primary source of repayment; assets serve as collateral and amounts in excess of leverage provide a cushion to protect investors. In such cases, EJR will normally use the Loan to Value approach for assessing credit quality. The amount, nature, and liquidity of the assets, together with an assessment of capital structure, coverage, security-specific protections (including priority of claim) and qualitative considerations, form our analytical basis for rating obligations.

#### QUALITATIVE AND QUANTITATIVE CONSIDERATIONS

A rating is a forward-looking opinion and as such requires that judgments be made about the future. Accordingly, a rating must balance both qualitative and quantitative considerations, essentially using past performance as a relative, rather than absolute, guide. The current state of affairs is an especially important consideration; however, an Egan-Jones rating is not based solely on a statistical analysis of the present situation. A rating considers many intangibles and, therefore, while future quantitative projections are analyzed and considered, many subjective factors are also recognized and considered. This third principle also applies to Egan-Jones Structured Finance ratings.

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## APPENDIX 2 DEFINITION OF ISSUER RATING

Egan-Jones corporate rating analysis begins with an evaluation of the fundamental creditworthiness of the issuer, which is reflected in an issuer rating. Issuer ratings address the overall credit strength of the issuer. Unlike ratings on individual securities or classes of securities, issuer ratings are based on the entity itself and do not include consideration for security or ranking. Ratings that apply to actual securities (secured or unsecured) may be higher, lower, or equal to the issuer rating for a given entity.

Given the lack of impact from security or ranking considerations, issuer ratings generally provide an opinion of default risk for all industry sectors. As such, issuer ratings in the banking sector relate to the final credit opinion on a bank that incorporates both the intrinsic rating and support considerations, if any.

Egan-Jones assigns ratings on a long-term basis using its Global Long-Term Rating Scale. Egan-Jones can also assign a short-term rating using its Global Short-Term Rating Scale to reflect an issuer’s overall creditworthiness over a short-term time horizon.

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# APPENDIX 3 GUARANTEES, SECURITY, AND OTHER FORMS OF EXPLICIT SUPPORT

Parent companies with favorable credit ratings often give some form of explicit support to a weaker subsidiary or affiliated company. If structured properly, the credit rating of the entity receiving support can be elevated to a level that would be unattainable if the entity were evaluated on a standalone basis. There are generally four types of explicit support that EJR will consider: (1) guarantees; (2) keep-well agreements (also referred to as credit support agreements); (3) foreign financial institution support agreements; and (4) comfort letters. If the explicit support provided is with respect to obligations other than those that are generally rated by EJR (i.e., other than principal and interest), the requirements set out below may not apply. Legal systems and laws vary from jurisdiction to jurisdiction and these criteria may be modified where appropriate as required by local laws and precedents, particularly with respect to guarantees.

Separate from any explicit support, EJR may consider business and reputational interests that could motivate a parent or affiliated company to support an issuer. In the absence of such implicit considerations or in combination with explicit support, EJR may look to the rating of the parent or the related entity on the basis of such implicit support in appropriate circumstances (see “International Financial Institution Support Agreements” below, for example).

# GUARANTEES

A financial guarantee is a contract under which a guarantor agrees to become responsible for the financial obligations of a principal debtor to a third-party creditor. Of the three forms of explicit support EJR considers (guarantees, keep-well agreements, and comfort letters); guarantees provide the strongest support as they create a legally enforceable obligation on the part of the guarantor to service the subsidiary’s debt. This legally enforceable obligation of the guarantor may allow EJR to rate the subsidiary at the same level as the guarantor. When rating specific securities, EJR will consider if the guarantee relates to all obligations of the issuer or if it only applies to specific securities.

EJR recognizes that each financial guarantee is unique and drafted to address specific circumstances. Therefore, while EJR generally expects guarantees to display the following characteristics, each guarantee is reviewed on a case-by-case basis.

- The guarantee is an absolute, direct, irrevocable, unconditional, and continuing obligation of the guarantor.
- The guarantee will not terminate until full payment of sum due. EJR will consider language that allows the guarantor to terminate the guarantee only if the rating of the supported entity would not be negatively affected by such termination.
- The guarantee ranks senior to or pari-passu with the guarantor’s senior unsecured obligations. On occasion, a guarantor will provide a guarantee that will rank equally with its subordinate debt. In these circumstances, any reliance of the guarantor’s rating will be at the subordinate debt level.
- The guarantor waives all defenses that would otherwise be available to guarantors and waives the enforceability or pursuit of the underlying obligation against the principal debtor.

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- The guarantor waives all rights of subrogation, reimbursement, contribution, indemnified offset or participation against the principal debtor until the guaranteed obligations are paid in full.
- The trustee, on behalf of bondholders, is a party to the guarantee, and the guarantee states that the guarantee is enforceable by the trustee on behalf of bondholders.
- The guarantee is binding on successors and assigns of the guarantor.
- The guarantee may not be amended or modified without the written consent of the third-party creditor relying on the guarantee.

# KEEP-WELL AGREEMENTS

Keep-well agreements between a parent company and subsidiary typically contain provisions whereby the parent agrees to maintain a given level of equity in the subsidiary or agrees to ensure that certain financial ratios are maintained by the subsidiary. Unlike a guarantee, a keep-well agreement does not create a legal obligation on the part of a parent to honor a subsidiary's debts and EJR is therefore less likely to permit it to provide support to the subsidiary's rating. However, to the extent that a keep-well agreement contains obligations that are material to the financial strength of the subsidiary and provided that the agreement contains language to the effect that the obligations of the parent are enforceable by the trustee on behalf of bondholders, keep-well agreements may result in support for a subsidiary's rating.

# FINANCIAL INSTITUTION SUPPORT AGREEMENTS

These support agreements typically contain provisions that the parent will ensure that its domestic subsidiary will at all times satisfy regulatory capital requirements, along with a promise to provide any liquidity necessary to fulfill obligations to depositors or policyholders. A number of factors may allow EJR to place greater weight on these agreements than it would for keep-well agreements, including the following:

- The fact that, for a highly rated financial institution, allowing a subsidiary to fail could have severe ramifications on the entity's other operations.
- Domestic financial institutions that are large borrowers need to take great care to maintain depositor and investor confidence.
- Domestic financial institutions are regulated by authorities that closely monitor their financial health.

# COMFORT LETTERS

Unlike a guarantee or a keep-well agreement, a comfort letter is not a contractual agreement; rather, it is a letter that may be provided to creditors of a subsidiary borrower by the subsidiary's parent company. Comfort letters typically address the parent's current policies and intentions with respect to the subsidiary.

Comfort letters are the least preferred method of offering explicit support for a rating as jurisprudence suggests they are unenforceable and provide no legal basis on which a creditor can pursue a parent company to recover defaulted obligations of a subsidiary. Notwithstanding the lack of a legal obligation, reputation and commercial considerations may, nonetheless, lead a parent to honor a subsidiary's debt.

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## COLLATERAL, SECURITY AND OTHER SUPPORT

The creditworthiness of an issue can be enhanced by the addition of collateral or other security. While the rating assigned is a function of numerous factors and is ultimately reflects the judgment of the rating analysts, in general, collateral, or other security can significantly reduce both the probability of default and in turn, the loss given default. For example, if an issuer's unsupported probability of default is deemed to be 10% over the term of the transaction and the loss given default is 50%, then it is reasonable to assume the loss to the investor would be in the area of 5% (that is 10% times 50%). However, if security of equal to 70% of the original transaction is provided, then the loss to the investor would normally be calculated as follows: 100% less the 70% secured resulting in an unsecured claim of 30%. Regarding the 30%, the probability of loss times the loss given default yields a product of merely 1.5% (that is, 30% times 10% times 50%). However, as a practical matter, the net loss would be greater because of the time and costs associated with the liquidation process. Providing an offset is the high likelihood that the secured debtholders are paid first so the business is not disrupted. Regarding the rating, the providing of security can be viewed as significantly reducing both the probability of default and the loss given default and as a result, enhancing the true creditworthiness of the transaction.

In some cases, EJR might deem the most appropriate method for evaluating credit quality is the collateral, which is the extent to which debt is covered by asset values, or Loan to Value ('LTV'). LTV provides an indication of the level of coverage the asset value provides relative to the exposure being rated. In some cases, LTV is unavailable. Loan to Cost ('LTC') might be used in conjunction with or in lieu of LTV. LTC might be particularly useful in the case of construction and development projects. Likewise, EJR might focus on the extent by which debt service is covered and alternatives if it is not fully covered. Additionally, EJR will consider and use other measures (e.g., guarantor, reserve account), which have become accepted by the rating industry as reasonable predictors of credit quality.

Collateral can take on a variety of forms and formats; the core issue is whether it is reasonable to assume that the collateral provides support for credit quality. Considerations in assessing collateral are the depth and breadth of the market for such collateral, the typical time required to liquidate collateral, impediments to liquidation, comparable recent transactions, appraisals, and other factors which might assist in assessing support for credit quality.

Ground leases are a type of secured obligation (see below), but typically the amount lent is small compared to the value of the land and improvements.

## CREDIT TENANT LEASES AND OTHER SECURED OBLIGATIONS

From a credit analysis perspective, Credit Tenant Leases ('CTLs') are indistinguishable from secured loans or secured debt (collectively Secured Obligations or 'SOs'). In assessing SOs, we first determine the credit quality of the obligor and assess the additional support which can be derived from the collateral. If at the end of the term of the obligation, proceeds are needed from the collateral to fully retire the obligation, EJR will use its standard loan-to-value analysis ('LTV'), which is more completely covered in Appendix 3: Collateral, Security, and Other Support. However, the normal outcome particularly for CTLs is that the obligor releases or purchases the collateral. Therefore, since the primary and normally secondary source of repayment of the obligation is derived from the obligor, CTLs and other SOs analyses are viewed as corporate analyses.

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# APPENDIX 4 RATING HOLDING COMPANIES AND THEIR SUBSIDIARIES

This documents the EJR approach to rating holding companies. As corporate families that employ a holding company and one or more subsidiaries can range in complexity, they have been grouped into three broad categories shown below. The terms holding company (holdco) and parent company are mostly interchangeable here (a holdco is normally a special-purpose vehicle with no operations designed to hold investments in subsidiaries, etc.; a parent company may have operations at that level and also hold investments in subsidiaries). It will be noted where the presence of operations could be material to the outcome.

The review here pertains to the assessment of a holdco's issuer rating, not the ratings of individual securities. Generally, an issuer rating reflects the probability of a company defaulting, given its total indebtedness, without regard to the ranking of the individual debt securities. Holding companies are a special case as they are not operating companies, per se. Hence the holdco probability of default is based directly or indirectly on a number of items including: (i) holdco financial/liquidity risk (ii) the probability of default of the subsidiaries, (iii) the way in which the group is bound together and (iv) any other factors that may reduce/increase the holdco's risk profile.

As the foregoing factors vary greatly from holdco to holdco, EJR has grouped the examples into three broad categories. Group I includes examples where the holdco rating is the same as the rating for the operating group (i.e., a consolidated credit). Groups II and III include examples where the holdco is viewed separately, with its rating lower or higher than the underlying operating group depending on the circumstances. Group IV includes examples where the holdco can impact the ratings of its subsidiaries.

The section below includes a number of general considerations that should be considered when evaluating holding companies. These include the holding company rationale, the structures, qualitative issues, and the financial statements. It is important to review this information as it forms the basis that underpins the analytical approach outlined in the examples shown below.

To establish ratings of holding companies and their subsidiaries, EJR would typically follow these steps. First, a stand-alone initial rating of the subsidiaries and the parent (to the extent it has operations) is determined. This is done by considering the risk factors of the industry and the financial risk of the issuer. Next, any special legal, structural, or other factors (as outlined below) are reviewed. Finally, the ratings of the parent and the subsidiaries are reassessed in light of these special legal, structural, or other factors to determine final ratings for the parent and the subsidiaries. The process can be a circular one in that the initial ratings of the parent and the subsidiaries may go through a process of blending or reconciliation until the final determination is made.

# Group I - Holdco Rating Equals Group Rating

- Corporate groups that are considered a single consolidated credit, where they are operationally and/or financially integrated or tied using cross-guarantees (i.e., there would be a collective default).
- The group's issuer rating would be based on a blend of the relevant industry methodologies.

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- Typically, these corporate families are included in one EJR report that uses the consolidated financial statements. The resulting issuer rating would become the reference point for the ratings of the individual securities.

# Group II - Holdco Rated Lower

- Corporate groups that are not considered a single consolidated credit, where the holdco and its subsidiaries would have separate issuer ratings (i.e., there could be two or more default probabilities).
- The issuer rating for each subsidiary would be derived using the respective EJR industry methodology.
- The holdco’s issuer rating could be notched down from the blended credit strength of the underlying subsidiaries, based on (i) the degree of support from its subsidiaries/investments, (ii) structural/legal subordination, (iii) double leverage and (iv) other factors as discussed below.
- Typically, these families are divided and covered in separate EJR reports, based on their respective financial statements.

# Group III - Holdco Rated Higher

- Corporate groups that are not considered a single consolidated credit, where the holdco and its subsidiaries would have separate issuer ratings.
- The holdco’s issuer rating would not be notched down and could be notched up from the blended credit strength of the underlying subsidiaries based on the presence of a number of positive factors discussed below.

# Group IV - Holdco Impact on Subsidiaries

- Miscellaneous situations, other than the above, where the credit profile of a holdco can further impact the ratings of its subsidiaries.

# Summary of Cases

The examples below illustrate how EJR would assign a rating to various types of holding companies in each of the three categories. The cases cover the more common situations and, in tandem with the comments above and the General Considerations section below, provide a fairly comprehensive framework. More complex situations might require looking to the rationale used in two or more cases.

# GROUP I - HOLDCO RATING EQUALS GROUP RATING

These groups are considered a single consolidated credit and are operationally/financially integrated or tied using cross-guarantees. Case 1a to Case 1c below provide examples of these situations. The rating considers the strength of all the individual companies in the group, and they are not assigned individual ratings. Any companies that are subsequently acquired and remain as separate legal entities (for tax, jurisdictional or other reasons) but are operationally integrated and/or guaranteed would be consolidated from a credit perspective and would not receive their own issuer rating.

# 1a. Holdco Advances to Subsidiary

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The holdco borrows funds and advances them to the operating companies. This structure is often used when an organization wants to centralize and control overall borrowing. The operating companies may be restricted from any substantial borrowing themselves by covenants. While some borrowing by operating companies may be permitted, such as bank debt for working capital purposes, this is usually for small, limited amounts over short time periods. Since there are no significant creditors at the operating level, creditors at the holdco level have recourse to the operating companies by way of the common equity in the event of default.

![img-0.jpeg](img-0.jpeg)

**ANALYTICAL APPROACH** - The holdco’s credit rating reflects the overall strength of the operating companies, assuming the operating companies are restricted from borrowing on their own, except for small amounts. There is no reduction in the rating for structural subordination. This principle typically breaks down if debt becomes meaningful at the operating entities.

#### 1b. Operating Companies Guarantee Holdco

The holdco and operating companies borrow funds. To prevent structural subordination, the operating companies guarantee the debt issued by the holdco.

![img-1.jpeg](img-1.jpeg)

**ANALYTICAL APPROACH** - When the holdco debt is guaranteed, the holdco issuer rating would be the same as the blended rating of the operating companies, without structural subordination.

#### 1c. Income Funds and REITs

Income funds can issue debt at the fund level (normally a trust) and /or at the operating company (including a limited partnership and/or a taxable corporation). The operating company services the debt at all levels.

**ANALYTICAL APPROACH** - Income funds/REITs can have unique legal structures involving trusts, limited partnerships, and operating companies. When there is borrowing at different levels, the ranking needs to be reviewed to determine if all debt is pari-passu. Hence the operating company and fund level debt

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ratings would reflect the overall business risk and the consolidated financial profile. Intercompany debt would not be a factor in the rating, as long as it is structured to serve only as a means of transferring cash flow from the operating company to the fund.

## GROUP II - HOLDCO RATED LOWER

These are groups that are not consolidated credits - specifically, the holdco and the subsidiaries have separate default probabilities and separate ratings. Here the entities must be assessed individually, although still within the group dynamic.

In these cases, it is critical to understand the holdco’s relationship with its subsidiaries. Specifically, it is important to confirm that the creditors of the holdco do not have direct recourse to the subsidiaries (structurally subordinated). Here the holdco debt effectively ranks behind the debt at the operating company (opco) since opco creditors have first recourse to the assets and cash flow of the opco. Also, it is important to confirm that the creditors of the subsidiaries do not have recourse to the holdco.

Where the holdco and subsidiary ratings, although separate, move in lockstep, there may be a case for only one issuer rating for the group. In these cases, it is unlikely that one member would default on its own.

### 2a. Traditional Structure

The holdco has one or two primary operating companies. Both the holdco and operating subsidiaries borrow material amounts from outside the group. The holdco’s funds are passed down by way of equity investments in the operating companies permitting additional indebtedness at the opco level (i.e., double leverage). There may be small amounts of intercompany debt and preferred shares. The debt is structurally subordinate to the operating company’s debt. The holding company’s rating must take this into consideration. The debt obligations of the operating company must be settled first in bankruptcy.

**ANALYTICAL APPROACH** - The holdco debt is normally rated lower than the debt of the operating company by at least one notch (due to structural subordination). In this case, creditors at the holdco level are one step removed from the assets and cash flow at the operating level.

High debt at the holdco can lead to a larger rating differential. If the holdco’s deconsolidated debt levels are less than 20% of the capital structure, a one rating notch differential would be appropriate. As the ratio increases above 20%, the chances for more than a one notch differential increase, and although EJR will consider this metric in relation to other factors on a case-by-case basis, entities with greater than 30% are more likely to be viewed as situations where more than one notch may be appropriate. If the holdco functions as both a holding company and an operating company, there may be more latitude when assessing the leverage at this level. If the holdco debt is quite large, the subsidiary ratings may also be negatively impacted (see case 4d below).

## GROUP III - HOLDCO RATED HIGHER

These are corporate groups that are not consolidated credits. Here the holdco’s issuer rating would likely be notched higher than normally would be the case, given the credit quality of its subsidiaries/investments. The higher notching is based on the presence of a number of additional positive factors. The weighting of these factors is determined solely by EJR to ensure the enhancements are clearly beneficial and can differentiate from holdco’s in Case 2a above.

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### 3a. Conglomerate Structure

The holdco has a number of large and small operating companies/investments. Both the holdco and operating subsidiaries borrow outside the group, as in 2a above. Even so, the holdco's rating equals or is a notch above the ratings of its subsidiaries due to a number of credit enhancing factors.

**ANALYTICAL APPROACH** - Determine the individual rating for each operating company. From these, a blended rating is established. Depending on the outcome of the factors below, the rating of the holdco has the potential to be the same or above the blended average of subsidiary ratings, based on a review of the following:

- The degree of leverage at the holdco level on a deconsolidated basis. Debt levels of less than 20% on a deconsolidated basis are acceptable. If leverage is in excess of 30% on a deconsolidated basis, its leverage may be a limiting factor.
- The amount of liquidity (i.e., committed credit lines, near liquid assets) committed as credit support.
- The size of cash inflows from all the subsidiaries to see if they meet the cash needs of the holding company, including dividends, operating expense, and interest expense. Specifically review the relative size of each subsidiary and the ability to maintain its dividends.
- The diversification of the cash flow from the subsidiaries and investments (by geography, industry, product, etc.). The greater the variety and independence of the individual cash flow streams, the stronger the case for the holdco's credit rating to equal or exceed the underlying investments.

### 3b. Enhancement

The holdco's rating is above the rating of a major subsidiary due to other enhancements that benefit its creditors.

**ANALYTICAL APPROACH** - The holdco may provide a number of enhancements to allow its rating to be higher than that of its major subsidiary. While there may be exceptions on a case-by-case basis, achieving a higher rating would typically require that all of the following conditions be met:

(a) Assets pledged as collateral (i.e., cash or shares if the subsidiary is publicly traded).
(b) As well, the presence of the following items bolsters the enhancement and strengthens the case for a higher rating.
(c) Significant, reliable cash inflow that exceeds borrowings and operating costs (i.e., dividend income from the major subsidiary)
(d) Additional assets that can be added and pledged should the assets in (b) decline
(e) Committed credit lines that exceed third-party borrowing
(f) Other near-liquid investments
(g) Limitations on third-party indebtedness and/or new issuance tests
(h) Voting control of the major subsidiary but with a structure that limits involvement in the day-to-day management of the subsidiary
(i) A history of a conservative use of leverage, etc.

GROUP IV - CORPORATE IMPACT ON SUBSIDIARIES

There are situations where the ratings of operating subsidiaries can be affected by the financial risk at the corporate level. Specifically, there are situations where a subsidiary's rating derived using the relevant

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methodology is further adjusted to take into consideration positive or negative credit implications at the corporate level.

#### **4a. Multinational Guarantee**

A strong company with substantial operations can guarantee the debt of its subsidiaries operating in different parts of the world. In these cases, the subsidiaries would issue debt locally where they operate (i.e., commercial paper).

**ANALYTICAL APPROACH** - Multinational companies may use subsidiaries to borrow in local markets and provide an unconditional guarantee to the operating company to allow it to borrow using the same rating. This is often the case when the subsidiary is smaller and, without the guarantee, it would likely be rated lower than the parent company. Besides a full guarantee, other alternatives include keep-well arrangements, but the strength of the support depends on the details of the agreement.

#### **4b. Strong Intent**

A company with strong operations of its own may support an operating company, but without any formal guarantees or keep-wells. The company may show and indicate its intent to support a wholly owned operating company, without having the legal obligation to do so. The company usually does this to preserve its equity investment and will add additional equity to the operating company and add other general support.

**ANALYTICAL APPROACH** - In such cases, the company’s rating is considered when rating the operating company (e.g., some subsidiaries have their foreign parent’s support but not a direct guarantee or keep-well). While the rating on the operating company is a consideration, without a guarantee it may be below that of the parent. A close examination of the relationship between the company and operating subsidiary is required. A full review of maximum liability to the parent and reputational risk is required for each entity within the organization.

If there is a major problem at the operating company, however, particularly if support could severely affect the strength of the parent company, this support would likely be withdrawn. As such, future intent has limitations. Nevertheless, there is often a rationale whereby the support from the parent company can be given some consideration in ratings for the operating companies. In those cases, where EJR believes that the parent company support is not strong, ratings for the operating companies would de-emphasize the strength of the parent company. In the case of an Operating Company having minority interests, the minority interest could pose challenges to the holding company rating even when there is a high level of control.

#### **4c. Ring-Fencing Protection**

Operating companies can be ring-fenced through covenants or, in some cases (e.g., utilities and financial companies), through the presence of a strong regulator. Covenants and subsidiary regulatory capital requirements may limit dividends and intercompany cash transfers and set other restrictions on the operating companies and the parent company.

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![img-0.jpeg](img-0.jpeg)

**ANALYTICAL APPROACH** - Because covenants can be broken and regulators provide different degrees of protection, cases vary. Ring-fence protection can allow for a different rating for the operating company, but it must be examined case by case to see how tight the ring-fencing protection is. By their nature, covenants must be considered on a case-by-case basis. Regulators also exhibit varying degrees of control, and each case must be examined to understand how much credit is due to the existence of a regulator. Because many of these considerations include subjective aspects, it is often the case that even with tight ring-fencing actions, there is typically a limit between the difference that can exist between the ratings assigned to a parent company and the related ring-fenced operating entities.

#### 4d. Conglomerate Structure - Leveraged

This is a similar case to the one discussed in 2a. The difference here is that the company is highly leveraged at the corporate level, possibly due to the financing of an acquisition. While the analysis in the first two steps remains the same, the third step notes the very high debt levels at the corporate level.

**ANALYTICAL APPROACH** - Same as for 2a above, except for the degree of leverage. The degree of leverage includes the relative size of the debt at the corporate level (likely well exceeding 30% of deconsolidated capital), but also the relative size of the group’s overall indebtedness when including the corporate debt. Here, not only would the rating be lower at the corporate level, but the credit risk from the corporate leverage also negatively impacts the ratings of the subsidiaries. In this case, all the individual ratings in the group are negatively impacted.

![img-1.jpeg](img-1.jpeg)

#### 4e. Captive Finance Companies

In cases where a company with substantial manufacturing or other operations owns a captive finance company (CFP), the rating of the CFP considers the relationship with and the creditworthiness of the parent. Depending on the degree of independence/support, the CFP’s rating can range from above to

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below the parent's rating.

# ANALYTICAL APPROACH

- A CFP could be rated higher than the parent, depending on the value and first claim ability of the CFP assets, the relationship between the CFP and the parent, the stand-alone strength of the CFP and how strong the base operating company ratings are to begin with. In most cases, the difference in ratings between the CFP and the parent would be limited to one notch. To exceed this limit, the CFP would have to be less than 50% controlled by the parent and there would have to be some comfort that the CFP had a franchise that would not be meaningfully damaged by major challenges at the parent.
- A CFP could be rated lower than the parent when the stand-alone strength of the CFP would be considered as below the rating of the parent, when the produce financing activity is not considered as "core" to the parent, when there are products financed beyond the parent's activities that have meaningful challenges/weaknesses and when there is not an acceptable support agreement (such as a guarantee) in place.
- Credits that are rated equal to the parent company would have characteristics that practically fall between the two aforementioned situations.

# GENERAL CONSIDERATIONS FOR HOLDING COMPANY RATINGS

The case examples above should be considered in light of the four sections below. Each section provides a number of considerations that help with the assessment of the, at times, complex nature of holding companies. In turn, this helps with the identification of risk and the assessment of the degree of risk. As there is no one-size-fits-all approach, the weighting of these considerations is dependent on the specific facts of the group being evaluated.

# RATIONALE

Understanding the reasons for the use of a holding company can help with the overall credit assessment. There can be a number of potential benefits to a corporate family when operating under a holding company. There can be disadvantages as well. Some of the more important factors include the following:

# Advantages:

(a) **Better access to liquidity** - In some instances, parent companies have better liquidity than their operating companies because of (i) multiple income streams, (ii) other liquid holdings or, in many cases, (iii) having the ability to sell shares in their investments.
(b) **Superior diversification** - Parent companies can be better diversified, with a few or many operating subsidiaries in (i) regulated or non-regulated sectors, (ii) different geographies and (iii) different industries, etc.
(c) **Tax advantages** - Parent companies often have more opportunities for group tax planning.

# Disadvantages:

(a) **Structural subordination** - The parent company's third-party debt is normally subordinate to the operating company's third-party debt.
(b) **Double leverage** - This occurs when the parent company issues third-party debt and advances it

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to the operating company in the form of equity, which allows the operating company to borrow against it.

(c) **Tax deductibility** - Total interest at the parent company may not be fully tax deductible if its income is modest.

## STRUCTURE

It is important to review a group’s functional and legal structure using a simplified organizational chart. The existence of intercompany agreements and the potential to commingle funds are normally important factors in the evaluation. When such factors are extensive, it typically reduces the distance between ratings at the different entities.

- (a) **Members of the group** - All key subsidiaries should be identified to ensure all material assets, investments and operations are included. Determine the quality and value of the assets and the entity's financial strength. Determine the subsidiaries' diversity and market position.
- (b) **Method of ownership** - The holdco may hold intercompany preferred shares and debt, as well as equity in the subsidiaries.
- (c) **Minority interest** - Identify any ownership by third parties in the subsidiaries. Review whether this affects voting control and governance, limiting the holdco's role in operating, distribution, and strategic decisions. When third-party ownership is material, the holdco should limit the deemed credit support from that subsidiary.
- (d) **Funding** - External funds may be raised at either the holdco or subsidiary level, or both. Internal cash flows may circulate freely within the group or be restricted. The holdco may have a bank facility that restricts the subsidiaries from borrowing, which may create a consolidated credit. If the subsidiaries are also able to borrow, the credit may need to be reviewed on a deconsolidated basis, including intercompany cash flow (dividends, interest, management fees, etc.).
- (e) **Double leverage** - Funds borrowed by the holdco can be passed down by way of equity investments, mirror-image lending, subordinated lending, etc. If it is passed down by making equity investment in the subsidiary and the subsidiary uses the increased equity base to increase borrowing, double leverage is created. If it is passed down using intercompany debt, the debt may rank below (subordinated) or equally with the subsidiary's third-party other debt.
- (f) **Special intercompany funding** - Some groups use a combination of reciprocal debt and preferred shares between a holdco and subsidiary in their tax planning. They are normally excluded from capital or cash flow calculations.
- (g) **Cross-guarantees** - Guarantees up to and down from the holdco can be used to bolster the credit strength of a smaller subsidiary or to consolidate the entire group from a credit perspective.
- (h) **Integration** - The group is integrated operationally (with support between the holdco and subsidiaries), as opposed to a pool of independent investments (with little support from the holdco).
- (i) **Holdco liquidity** - The holdco may have assets such as cash, marketable securities, etc. that may result in additional credit support in addition to credit support received from the subsidiaries. A holdco can also sell shares in the investments depending on (i) the amount of time involved and (ii) any additional issues if selling from a control position.
- (j) **Reporting issuer** - If the parent and/or operating companies are not reporting issuers, there may be limitations in raising new funds if only the private markets are available. This could increase the potential for the group to commingle funds.

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## QUALITATIVE

In assessing the degree to which a parent company would provide credit support to an operating company, or vice versa, it is important to understand how critical the operating company is to the parent company and the group overall. Also note that, while it may be possible for the parent company to abandon a subsidiary, it may not be practical to do so because of the integration and/or interdependence of the businesses. Bankruptcy courts are less likely to view a holdco and subsidiary as separate entities if their operations are integrated (i.e., piercing the corporate veil).

(a) **Holdco leverage** - Holdcos with meaningful debt could put pressure on operating companies to maintain dividends by restricting subsidiary expenses and capital expenditures, which could be problematic over the longer term.

(b) **Inferred support** - There may be brand-name or other negative market and/or customer consequences that could lead to a parent company supporting an operating entity even when it could walk away from the investment.

(c) **Intent** - The following factors are used to assess the relationship between a parent and its operating companies:

- • Cross-default provisions.
- • Economic incentives for the parent to support the subsidiary.
- • Statements made by the parent company in support of the subsidiary, publicly or privately.
- • The extent of parent company management control of the subsidiary.
- • The effect on investor confidence if the parent company supported or didn't support the subsidiary.
- • Whether the strategic importance of the subsidiary to the parent is critical.
- • Shared name and reputation risk between the parent and subsidiary.
- • Whether the parent and subsidiary are located in the same country.
- • Past and/or ongoing tangible support provided by the parent.
- • The size of the subsidiary in terms of total investment.
- • The size of debt at the subsidiary that the parent would support.
- • The parent's financial capacity to provide support.

## FINANCIAL STATEMENTS

a) **Cash inflow** - EJR might review the source of the holdco’s cash inflow to assess how stable it is. One way to assess the stability of incoming dividends is to understand the dividend payout ratio at the operating entities. Normally a higher dividend payout ratio carries more risk in times of stress.

b) **Dividend restrictions** - If there is regulation at the operating level, there could be meaningful restrictions on its ability to pay dividends. This could also be the case when entities are in different countries.

c) **Cash outflow** - EJR reviews how the holdco uses its cash to support liquidity and any deficiencies. This may include internal funding to support the group, strategic investing and ways potential shortfalls could be addressed, such as cutting common dividends, dividend reinvestment plan (DRIP) programs, etc.

d) **Additional assets** - Some holding companies have meaningful amounts of cash and marketable

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securities on hand that could bolster the liquidity provided by cash inflows. EJR will normally take a conservative view in assigning additional credit for cash and securities unless there is strong tangible evidence that these resources will not be used for acquisitions, dividends or share buybacks or be transferred to subsidiaries.

e) **Future Prospects** - An understanding of the holdco’s future intentions can be relevant to help determine if the holdco intends to maintain its current credit profile over the longer term.

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## APPENDIX 5 PREFERRED SHARE AND HYBRID CRITERIA

The following outlines the EJR rating approach to preferred shares and hybrid instruments including the manner in which EJR assesses the “equity weighting” to be given to a hybrid or preferred security/instruments, as well as the rating of the hybrid or preferred share instrument itself. In general, preferred shares are considered subordinate to debt and EJR’s ratings are reflective of that fact with the norm being a one cut notch from the subordinated debt rating and typically at least two notches down from the Company’s senior unsecured rating. Exceptions are when a company has few slices of capital such as merely having preferred stock and common equity (and no intention to issue debt), in which case the preferred would probably not be notched down to the extent it normally would be. Another exception is when preferred shares have a term (i.e., term preferred) which is shorter than a material portion of the company’s debt or when the preferred shares are issued by the entity generating cash and debt is at the holding company level (i.e., structural subordination). Additional complexities arise in the case of cross jurisdictional holdings. In the case of perpetual preferred and perpetual hybrid instruments, the face value or principal (in the case of many hybrids) can be deferred indefinitely in the case of an ongoing enterprise. Therefore, adjustments should be made to measure credit quality.

Concerning whether preferred should be treated as equity, the below sections provide some guidance.

### Background

When assessing the equity weighting as applied to hybrids or preferred shares, the key question is: “How closely does the instrument replicate the characteristics of common equity?” Common equity has the following attributes: (1) no maturity date, i.e., “Permanence,” as discussed below; (2) given its junior ranking, common equity provides a buffer or loss absorption mechanism for all other creditors, i.e., “Subordination” (see below); and (3) no ongoing payments that could trigger default if missed, i.e., “Legal” (see below). In many cases, hybrids and preferred shares will have some, but not all, of these attributes. These attributes constitute the three key factors considered by EJR in evaluating the financial risks and benefits that a hybrid brings to an issuer.

“Hybrid” is a term used by EJR to describe financial instruments that combine certain characteristics of both debt and equity. Hybrids typically combine the equity features of preferred securities with the tax deductibility of debt instruments. There is a wide variety of hybrid combinations in the marketplace, with new versions emerging from time to time. Investors are attracted to hybrids because the coupon rates are normally high, relative to the general credit quality (i.e., default probability) of the issuer. This compensates investors for some combination of risks that are not present with more traditional “plain vanilla” types of debt.

The more common such risks include: (1) hybrids are normally deeply subordinate in the capital structure, meaning that holders have a very junior claim in the event of default and bankruptcy; (2) many hybrids allow the issuer some ability to defer interest payments for up to five years without triggering a default; (3) hybrids may allow the issuer the ability to repay obligations in common stock; and (4) hybrids are often very long-term in nature and are, in some cases, perpetual.

Preferred shares are normally less complicated than hybrids and, next to common equity, hold the ranking as the most junior security. As discussed herein, preferred shares are by definition equity and typically

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command a very high level of equity weighting. EJR believes that there is a difference between debt and equity, regardless of the features that might attract equity weighting. As such, all things being equal, preferred share instruments will typically garner higher equity weighting than debt hybrid instruments.

In assessing the equity weighting to apply to a hybrid or preferred share instrument, EJR will consider the factors of Permanence, Subordination and Legal, noting that the relative proportion of preferred to hybrid shares to common equity is also an important factor to be discussed separately within these criteria.

### **Permanence**

In order to receive the highest level of equity treatment, the security should be close to perpetual status, with no maturity or cash repayment requirement, as with common equity. Since it is rare to find perpetual securities with no call provisions, this attribute is sometimes achieved by having coupon and principal payments paid with common shares. If this is at the issuer's option, it is known as a 'soft retraction' feature. Preferred shares with a 'hard' retraction feature can only be repaid with cash at the issuer's option. Those securities where market reset mechanisms could lead to redemption if the coupon cost became prohibitively expensive in relation to then-current market rates are typically treated as debt-like, if the reset feature increases the chance that they would be redeemed for cash at some point in the future. Securities for which a trustee is required to sell stock into the open market to raise cash to pay off the hybrid are not considered valuable from an equity treatment perspective.

The subjective issue of issuer intent can play a key role in determining Permanence. For example, virtually all new issues of hybrids today have call options allowing for redemption within five years of issue. Regardless of payment in kind (PIK) or deferral options, it is difficult to give equity consideration to securities if the issuer is likely to redeem them for cash after only five years, unless there is some assurance that it will be replaced with a similar or better security, in terms of equity consideration. There are also cases where the pricing penalty at the end of five years becomes so severe that it increases the probability that the issuer would use a call feature to redeem the securities. As such, while a hybrid may be perpetual on a legal basis (since there is no legally mandatory redemption or ability for the holder to retract for cash), it would not be given equity consideration if, in all likelihood, redemption after five years is expected. Gauging the issuer's intent, therefore, becomes an especially important consideration, and hybrids that must be evaluated in the context of an issuer's future capital structure plans.

This may raise the related question as to why EJR is comfortable in treating preferred shares as 100% equity, even though the issuer typically has the ability to redeem the preferred shares with debt financing. Its rationale involves the following considerations:

(i) As already noted, EJR only treats preferred shares as equity when it believes that the issuer has no intent to replace the preferred shares with debt in the future.

(ii) While this may appear to be a subjective standard, it is important to note that a company has the flexibility to alter its capital structure in various ways at any time. Even common equity can change quickly, if a company decides to buy back stock or pay a meaningful special dividend. It views these events as similar to an unexpected reversal in a company's desire to maintain its outstanding preferred equity.

(iii) When EJR assesses an issuer's financial risk, a critical component of its assessment is its opinion as to the appropriate capital structure. If this changes for any reason, rating changes are possible. The treatment of preferred shares is not an isolated item, but is viewed by EJR as part of its overall expectation

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for an entity’s future capital structure.

(iv) Notwithstanding the ability of companies to issue moderate amounts of preferred equity to be treated as equity, there is no “free lunch.” All preferred share dividend payments (not just those in excess of the 20% threshold) are considered in such metrics as the fixed charge coverage and the analysis of free cash flow.

(v) It is not an event of default for preferred dividends to be undeclared. While it is true that this does not typically occur until a company is under severe stress, the same holds true for common dividends. As noted above, EJR assesses both in the context of free cash flow. Preferred share dividends are seldom the leading factor for cash flow issues, which are more commonly the result of items such as reduced business prospects, high debt levels, common dividends, and capital expenditure.

(vi) Historically, there have been few instances of companies that have altered their views on preferred shares such that they are replaced with debt, and EJR expectations have been proven wrong.

### **Subordination**

Although not equivalent to the lowest-ranking status of common equity, most hybrid instruments are deeply subordinated. Hybrids typically rank just above any traditional outstanding preferred shares, which would rank last in line before common equity. Hybrids provide a cushion for higher-ranking debt holders and creditors in cases of bankruptcy.

### **Legal**

Debt has a contractual obligation to pay principal and interest, with omission resulting in default or bankruptcy. Cross default triggers being common. While an issuer will go to great lengths to maintain common share dividends, this is not a fixed requirement that could lead to default if omitted. In a crisis, reducing or omitting the common share dividend is an option that the issuer will likely consider. While preferred shares typically have the ability to indefinitely avoid declaring a dividend, hybrids typically only have the ability to defer coupon payments without triggering default for a set period of time. While both preferred and common dividends can be missed without triggering default, an issuer is typically more reluctant to omit a preferred dividend payment (noting that common dividends may not be paid if preferred shares are in arrears).

Nevertheless, consideration must be given to the fact that taking these options could impact future issuance for the company, and that headline risk is possible, and some payment options may have a dilutive aspect that the company may wish to avoid. These considerations represent challenges that are all part of the complexity in assessing the correct equity weighting for hybrids.

In general, the easier and longer an issuer can pass on payments, the more equity-like is the security in question. In the event that the deferral option is used, the ability to pay an accumulated obligation with equity is a valuable one.

Permanence (including issuer intent) and Legal considerations are typically the key drivers differentiating hybrids from one another and can lead to diverse equity weightings. The EJR treatment of individual instruments uses a blend of qualitative and quantitative considerations that will all relate to the three overriding factors mentioned above. Assessing equity weighting for hybrids is not simply a quantitative exercise.

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# APPENDIX 6 CREDIT RATING SYMBOLS, NUMBERS, OR SCORES

Credit ratings are based, in varying degrees, on the following considerations:

- Likelihood of payment-capacity and willingness of the obligor to meet its financial commitment on an obligation in accordance with the terms of the obligation.
- Nature of and provisions of the obligation.
- Protection afforded by, and relative position of, the obligation in the event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors' rights.
- In general terms, ratings are opinions that reflect the creditworthiness of an issuer, a security, or an obligation. They are opinions regarding estimated loss based on forward-looking measurements that assess an issuer's ability and willingness to make payments on outstanding obligations (whether principal, interest, dividend, or distributions) with respect to the terms of an obligation. As such, they pertain to senior obligations of an entity. Junior obligations are typically rated lower than senior obligations, to reflect the lower priority in bankruptcy, as noted above. (Such differentiation applies when an entity has both senior and subordinated obligations, secured and unsecured obligations, or operating company and holding company obligations.)
- EJR derives its "watch" assignments from the difference between the current and projected ratings. No difference between the two results in a "stable" watch, a higher projected rating results in a "positive" or "POS" watch and a lower projected rating results in a "negative" or "NEG" watch. The absence of a projected rating results in a "developing" or "DEV" watch, or no watch being populated. The addition of a POS or NEG is at the discretion of the analyst or Rating Committee and usually results from the direction the rate is expected to move overtime.
- "Under Review" ("UR") status serves to alert users of credit ratings that EJR either is reviewing or plans to review a credit rating. It is not classified as a rating action by EJR. An example of a single rating that might merit being placed "Under Review" could include the monitoring of a potentially material event that has not yet occurred, such as a merger, acquisition, or divestiture.

Examples of a group of ratings that might merit being placed "Under Review" could include:

- Ratings that are potentially impacted by a material methodology or model change.
- A group of ratings within a sector or asset class that are potentially impacted by a sector-specific event.
- A group of ratings that are potentially impacted by a significant macroeconomic event.

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*Timing for resolving “Under Review”*- Ratings placed “Under Review” as a result of a material methodology or model change are typically resolved (i.e., voted on by a committee) within six months. All other ratings placed “Under Review” are typically resolved within three months.

- EJR may “Suspend” a credit rating due to a delay in the issuance of financial statements or other information EJR deems necessary in order to properly surveil and maintain a rating. As a result, we are suspending the credit rating (as opposed to withdrawing the credit rating). When a rating is designated as “Suspended” the credit rating should not be considered current. “Suspended” status is a rating action by EJR.

*Timing for Resolving a “Suspended Rating”* - We would expect to receive financial statements or other necessary information in the near future. Once we receive the required information, we will perform our analysis and reinstate the credit rating at the updated level. We would typically endeavor to resolve a “Suspended” rating within three months.

- For structured finance ratings, EJR will assign the “(sf)” modifier to any related ratings. Where applicable, a “AAA” rating in structured finance would be denoted by a “AAA(sf);” the “(sf)” symbol only indicates that the security is a structured finance instrument. The following asset types are generally considered SF transactions and would therefore be assigned the “sf” modifier: asset-backed securities (ABS), residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDOs), insurance securitizations, and asset-backed commercial paper (ABCP) programs. The list presented here is not intended to be all inclusive or an exhaustive list of SF securities that would carry the “(sf)” symbol.

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# **Credit Rating Scale**

| Long-Term Credit Rating | Short-Term Credit Rating |
| --- | --- |
| AAA |  |
| AA+ |  |
| AA | A1+ |
| AA- |  |
| A+ | A1 |
| A |  |
| A- | A2 |
| BBB+ |  |
| BBB | A3 |
| BBB- |  |
| BB+ |  |
| BB |  |
| BB- | B |
| B+ |  |
| B |  |
| B- |  |
| CCC+ |  |
| CCC |  |
| CCC- | C |
| CC |  |
| C |  |
| D | D |

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# Global Long-Term Rating Scale

| AAA | Egan-Jones expects AAA ratings to have the highest level of creditworthiness with the lowest sensitivity to evolving credit conditions. |
| --- | --- |
| AA | Egan-Jones expects AA ratings to have a higher level of creditworthiness with very low sensitivity to evolving credit conditions. |
| A | Egan-Jones expects A ratings to have the high level of creditworthiness with low sensitivity to evolving credit conditions. |
| BBB | Egan-Jones expects BBB ratings to have the moderate level of creditworthiness with moderate sensitivity to evolving credit conditions. |
| BB | Egan-Jones expects BB ratings to have a low level of creditworthiness with high sensitivity to evolving credit conditions. |
| B | Egan-Jones expects B ratings to have a lower level of creditworthiness with higher sensitivity to evolving credit conditions. |
| CCC | Egan-Jones expects CCC ratings to have the lowest level of creditworthiness with highest sensitivity to evolving credit conditions. |
| CC | Egan-Jones expects CC ratings to have the lowest level of creditworthiness and some expectation of recovery. |
| C | Egan-Jones expects C ratings to have the lowest level of creditworthiness and little expectation of recovery. |
| D | Egan-Jones expects D ratings to have the no determinable level of creditworthiness with uncertain recovery expectations. |

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.

NR

This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Egan-Jones does not rate a particular obligation as a matter of policy.

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# Global Short-Term Rating Scale

| A-1 | A-1 ratings have the highest short-term creditworthiness. |
| --- | --- |
| A-2 | A-2 ratings have a higher short-term creditworthiness. |
| A-3 | A-3 ratings have moderate short-term creditworthiness. |
| B | B ratings have a low short-term creditworthiness. |
| C | C ratings have the lowest short-term creditworthiness. |
| D | D ratings have no discernable short-term creditworthiness. |

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## APPENDIX 7 TESTING OF RATING METHODOLOGIES AND RATING MODELS

There are numerous steps required for the testing and validation of the rating methodologies and models. Testing is conducted to confirm that the firm’s approach is sound. In testing and validating its Methodologies EJR takes the following approach for randomly chosen credits:

| Data Capture | ensure that the appropriate data is being captured for the issue |
| --- | --- |
| Data Validation | ensure that the data captured is accurate |
| Data Placement | ensure that the data is being properly inputted |
| Data Projection (where applicable) | ensure that the assumptions are properly being applied in calculating the projected financial statements while projected rating is presented |
| Ratio Selection | ensure that the proper credit ratios are being selected for the issuer |
| Ratio Calculation | ensure that the ratios are being properly calculated |
| Peer Selection | ensure that the selected peers are comparable to the issuer |
| Industry Ratios | ensure that industry ratios provide a reasonable representation of the spectrum of credit quality for the industry |
| Implied Senior Rating | ensure that the issuer’s credit position is properly translated into the Implied Senior Rating |
| Publication | ensure that the report is properly published and that the action is recorded in the publication log and in the rating database. |
| Rating Review | ensure that the rating actions are properly presented to the RRC. |

In the case that no financial model is used, the rating analysis and key calculation that reflect the rating methodology shall be tested by the same approach above as appropriate.

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

## APPENDIX 8 NON-SUBSCRIPTION RATINGS

A non-subscription rating, which includes private placements, are generally prepared for a restricted audience, where the rating, any supporting report, and knowledge of the rating, are circumscribed in accordance with the terms of the arrangement between EJR and the issuer or third party.

Non-subscription ratings may include issuer participation, be based on publicly available information, and may be initiated by Egan-Jones, the Issuer or an interested third party. Non-subscription ratings may be used for a variety of reasons including, but not limited to an issuer request for the purposes of issuing debt to a small number of investors who intend to use the rating as a rating opinion; a rating opinion requested by an investor, regulator, government, or other interested third party; analyze transaction party and/or counterparty credit exposure for Structured Finance ratings. The sharing of all knowledge, information and records regarding a non-subscription rating is limited in accordance with the terms of the arrangement with the issuer, investor, or third party who requested the rating and in adherence to Egan-Jones policies and procedures.

The first step in the ratings process is to acquire information about the issuer. For publicly traded issuers, EJR uses financial information from publicly available and recognized reliable sources such as Edgar, IMF, and others. EJR may also use the non-public information provided from clients directly, especially for non-subscription ratings.

EJR analysts apply the same methodology, policies, and procedures as the subscription ratings but in the case of corporate ratings, often with a focus on EBITDA and cashflow measures rather than earnings. When assessing the credit rating, EJR will determine on the most appropriate metrics including credit industry ratios, loan to value, debt service coverage and other measures.

For non-subscription ratings (which includes private placements), EJR provides confidential, unmonitored, unpublished indicative ratings at its sole discretion. The indicative rating generally includes a rating range, or an approximate rating based on the limited information provided, has a certain validation period (such as 30 days, etc.), and is not approved by the RRC. Documentation evidencing the delivery of indicative ratings shall be retained, as applicable.

Before issuing the final rating, non-subscription ratings are generally reviewed by the RRC, other analysts, supervisors, or senior managers before a rating action is formally taken. Detailed voting process can be found in “Rating Review and Ratings Review and Policy Committee” section. After the rating approval, the rating report will be delivered to the client solely unless the client gives other delivery requests.

EJR provides a private rating and its surveillance based on client’s request. The Ratings Group provides the initial private rating report, in which a notification of one-year rating validation period from the date of issuance of rating is included unless specified otherwise. Ratings expire if not followed with surveillance ratings. EJR subsequently drops expired ratings from its database within 30 days of the date of expiration.

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Egan-Jones
Ratings Company

Founded 1995

# APPENDIX 9 OTHER METHODOLOGIES

In addition, EJR describes its rating approaches and methodologies in the following areas:

- EQUIPMENT LEASE AND LOAN RATING METHODOLOGY
- FUND RATING METHODOLOGY
- PROJECT FINANCE & INFRASTRUCTURE RATING METHODOLOGY
- CREDIT TENANT LEASE TRANSCATIONS AND OTHER SECURED CORPORATE OBLIGATIONS RATING METHODOLOGY
- METHODOLOGY FOR RATING GROUND LEASE TRANSACTIONS

These methodologies are publicly available on EJR's website https://egan-jones.com/methodologies.

These methodologies shall be used in conjunction with this main Methodology.

EJR will continue its research effort in methodology development in more areas.

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**Attachment 4:** `ejrex3.pdf`

# Egan-Jones Ratings Company

(“EJR”)

# Form NRSRO

Exhibit #3 Policies or Procedures adopted and implemented to prevent the misuse of material, nonpublic information.

- Code of Conduct
- Handling of Confidential Information and Non-Public Information
- Separation between Ratings and Marketing
- Separation between Ratings and Proxy
- Outside Business Activities
- Standard for E-Mail Addresses
- Types of Credit Ratings Policy

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# Table of Content

| PRINCIPLES OF THE CODE | 3 |
| --- | --- |
| FOSTERING A CULTURE OF COMPLIANCE | 3 |
| KNOW AND UNDERSTAND THE LAWS AND REGULATIONS | 3 |
| PROFESSIONALS SERVING PROFESSIONALS | 4 |
| TRUST, BUT VERIFY | 4 |
| ACT IN THE BEST INTERESTS OF THE FIRM, CLIENTS & THE PUBLIC | 4 |
| FAIR DEALING & INTEGRITY | 4 |
| PERSONAL EMAIL USAGE POLICY | 4 |
| PROHIBITED CONFLICTS | 5 |
| CONFLICTS OF INTEREST | 7 |
| GIFTS & ENTERTAINMENT | 7 |
| CORPORATE OPPORTUNITIES | 8 |
| FIRM SYSTEMS AND ASSETS | 8 |
| PERSONAL SECURITIES TRANSACTIONS AND HOLDINGS | 8 |
| INSIDER TRADING POLICIES AND PROCEDURES | 9 |
| ENFORCEMENT AND ADMINISTRATION OF THE CODE | 11 |
| WHAT TO DO IF YOU LEARN INSIDE INFORMATION | 11 |
| HOW TO PRESERVE THE CONFIDENTIALITY OF MATERIAL NON-PUBLIC INFORMATION | 11 |
| PROVIDE FAIR AND TRUTHFUL DISCLOSURES TO OUR CLIENTS & THE PUBLIC | 12 |
| REPORTING VIOLATIONS | 12 |
| MEASURES TO BE UNDERTAKEN IN THE EVENT OF A MATERIAL BREACH | 13 |
| CONSEQUENCES OF VIOLATING THE CODE | 13 |
| ATTESTATION, WAIVERS, AMENDMENTS AND CONTACT INFORMATION | 13 |

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# **EGAN-JONES RATINGS COMPANY CODE OF CONDUCT**

# **PRINCIPLES OF THE CODE**

# **Fostering a Culture of Compliance**

Egan-Jones Ratings Company (“EJR” or the “Firm”) has a Code of Conduct (the “Code”), which serves as its code of ethics. The purpose of this Code is to set forth basic principles to guide you in your day-to-day activities as an employee, or independent contractor (collectively an “Associated Person”), and to outline the expectations the Firm has of all its Associated Persons. The Firm requires its Associated Persons to read and adopt the Code to enhance their understanding of the Firm’s practices, including procedures regarding personal securities and money market instruments transactions, insider trading and personal email usage provisions. This Code is intended to provide basic principles and behavior guidelines and foster a “culture of compliance” at EJR.

The Code does not cover every regulatory, legal or ethical issue that you may confront at the Firm. Indeed, no code of conduct can attempt to anticipate the myriad of issues that arise in a fast-moving, financial-related enterprise like EJR. However, by following this Code and the Firm’s policies and procedures, by adhering to the letter and the spirit of all applicable laws and regulations, and above all, by applying sound judgment to your activities, the Associated Persons will be able to adhere not only to the regulatory requirements applicable to EJR, but also to the Firm’s commitment to compliance and ethical behavior in all of its activities.

In addition to this Code, you are required to read and acknowledge acceptance of, and compliance with, the EJR Compliance Manual (the “Manual”). The Manual contains additional information on the regulations governing NRSROs, issues that are presented in the operation of a credit ratings business, and other subjects that may or may not be addressed in this Code.

# **Know and Understand the Laws and Regulations**

EJR is registered as a nationally recognized statistical rating organization (“NRSRO”) with the U.S. Securities & Exchange Commission (“SEC” or the “Commission”) in the following classes of credit ratings: (1) financial institutions, brokers or dealers; (2) insurance companies; and (3) corporate issuers, and is therefore subject to regulation and oversight in the United States by the Commission. EJR is also subject various laws of the Commonwealth of Pennsylvania where its main office is located as well as state and local laws of each of EJR’s offices. It is your responsibility to know and understand the laws and regulations applicable to your job responsibilities, and to comply with both the letter and the spirit of these regulations, as well as the Firm’s policies and procedures. EJR requires that you avoid not only any actual misconduct but also even

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the appearance of impropriety. We require Associated Persons to rely on common sense, good judgment, individual integrity and a discerning mind to guide you in your day-to-day activities. Assume that any action you take ultimately could be publicized; therefore, when taking an action consider how you and the Firm would be perceived. When in doubt, seek guidance from the Firm's knowledgeable regulatory and compliance personnel. Such personnel will assist you in obtaining any guidance you might need.

### **Professionals Serving Professionals**

EJR provides credit rating products and services for institutional clients. The majority of its clients have long-term high-level experience within the securities business, and have internal capability for independent analysis and investment decision making. Our product is a tool for such professional institutional clients.

### **Trust, but Verify**

Trust your instincts. If something does not appear to be lawful or ethical, or you have a question about it, ask the Firm's Designated Compliance Officer ('DCO'), raise a flag, and ask for help from the Firm's resources. Seek guidance rather than making assumptions that you are aware of regulatory nuances. The Firm strongly encourages you to discuss freely any concerns with knowledgeable persons, and requires you to report to the Compliance Department violations of law and regulation as well as internal policies and procedures. If you are unclear about the applicability of regulations to your job responsibilities, or if you are unsure about the propriety of a particular course of action, you should seek the advice of your supervisor and / or the Firm's DCO. You should never assume that an activity is compliant merely because others in the industry engage in it or you do not see any pitfalls in the course of action. EJR encourages you to reach out to any of the foregoing with your questions prior to pursuing a course of action if you are not 100% positive you know the regulatory ramifications of that action.

## **ACT IN THE BEST INTERESTS OF THE FIRM, CLIENTS & THE PUBLIC**

### **Fair Dealing & Integrity**

The Firm's basic core concept is that we provide a valuable service to our institutional clients. We rely on the trust of our clientele, for their belief and respect for our products and services, and the trust they invest in our abilities and integrity. The Firm seeks to outperform its competition fairly and honestly through timely superior analysis and experience. Every Associated Person must therefore always keep the best interests of the Firm's clients paramount and endeavor to fairly and properly deal with its clients, competitors, public, and vendors. No one should take unfair advantage of anyone through manipulation, abuse of privileged information, misrepresentation of facts, intimidation, or any other unfair practice. No Associated Persons should ever position themselves for, or take, personal gain through their association with the Firm.

### **Personal Email Usage Policy**

EJR's Associated Persons are strictly prohibited from using their personal email

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accounts to transmit and/or receive confidential information and/or confidential workplace documents or to conduct workplace business, provided certain limited exceptions may be granted by the Compliance Department for employees working from home. The Code of Conduct attestation includes a clause requiring all EJR Associated Persons to attest to use only their EJR email address to transmit and/or receive Confidential Information and/or confidential work papers or to conduct workplace business. Attestations are collected and reviewed by the Compliance Department. As part of the Firm's annual compliance training, all Associated Persons will be reminded of EJR's policies and procedures with regards to safeguarding confidential information and material nonpublic information.

On a periodic basis, the Compliance Department will conduct an email search on randomly-selected Associated Persons to ensure emails sent to or received from personal email accounts did not contain Confidential Information and/or confidential workplace documents (see "Email Review Policies and Procedures" in the Compliance Manual). Email search results will be retained within a compliance surveillance folder. Any Associated Persons who use a personal email account are required to attest to their awareness of this Personal Email Usage Policy. Associated Persons who commit an infraction of this Policy may be subject to disciplinary action, including termination at the recommendation of the DCO.

Associated Persons are also prohibited from using the Firm's email to transmit material that may be deemed to be offensive to a prudent person, or emails that reflect badly on the corporate culture of the Firm. Those include (but are limited to) any email that could be deemed pornographic, sexist, hateful, racist, discriminatory, terroristic, harassing, disparaging to the Firm or any of its Associated Persons, or any email that could be considered workplace brutality. Any emails with the aforementioned content will not be tolerated in the Firm's email environment, and may lead to immediate disciplinary action, including termination. Note that these email policies also apply to personal email accounts accessed via the Firm's systems.

### Prohibited Conflicts

As an NRSRO, the Firm is prohibited under Rule 17g-5(c) of the Securities Exchange Act of 1934, as amended ("Exchange Act") from having the following conflicts of interest relating to the issuance or maintenance of a credit rating as a credit rating agency, and we therefore do not engage in the PROHIBITED CONFLICTS listed below:

(1) Issue or maintain a credit rating solicited by a person that, in the most recently ended fiscal year, provided the Firm with net revenue (as reported under §240.17g-3) equaling or exceeding 10% of the total net revenue of the Firm for the fiscal year;1

(2) Issue or maintain a credit rating with respect to a person (excluding a sovereign

1 Unless the Firm receives an exemption from the Commission.

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nation or an agency of a sovereign nation) where the Firm, a credit analyst that participated in determining the credit rating, or a person responsible for approving the credit rating, directly owns securities of, or has any other direct ownership interest in, the person that is subject to the credit rating. Please refer to “Personal Securities Transactions and Holdings” herein for detailed information.

(3) Issue or maintain a credit rating with respect to a person associated with the Firm;

(4) Issue or maintain a credit rating where a credit analyst who participated in determining the credit rating, or a person responsible for approving the credit rating, is an officer or director of the person that is subject to the credit rating;

(5) Issue or maintain a credit rating with respect to an obligor or security where the Firm or a person associated with the Firm made recommendations to the obligor or the issuer, underwriter, or sponsor of the security about the corporate or legal structure, assets, liabilities, or activities of the obligor or issuer of the security;

When a client requests a NRSRO rating that the Firm cannot rate due to the Firm’s NRSRO registration status (e.g., municipal security, government security, foreign government security or ABS security), you must inform the client that the Firm is unable to provide a NRSRO rating for such security because the Firm is not registered as a NRSRO in such classes of credit ratings. You may not make any suggestions or recommendations to the client about ways in which the security could be altered in a way that EJR could rate it as a NRSRO.

(6) Issue or maintain a credit rating where the fee paid for the rating was negotiated, discussed, or arranged by a person within the Firm who has responsibility for participating in determining credit ratings or for developing or approving procedures or methodologies used for determining credit ratings, including qualitative and quantitative models;

(7) Issue or maintain a credit rating where a credit analyst who participated in determining or monitoring the credit rating, or a person responsible for approving the credit rating received gifts, including entertainment, from the obligor being rated, or from the issuer, underwriter, or sponsor of the securities being rated, other than items provided in the context of normal business activities such as meetings that have an aggregate value of no more than $25 (See Section “Gifts & Entertainment” below); or

(8) Issue or maintain a credit rating where a person within the Firm who participates in determining or monitoring the credit rating, or developing or approving procedures or methodologies used for determining the credit rating, including qualitative and quantitative models, also:

(i) Participate in sales or marketing of a product or service of the Firm or a product or service of an affiliate of the Firm; or

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(ii) Is influenced by sales or marketing considerations.

For the purposes of the above Prohibited Conflicts, the term person within an NRSRO means the Firm itself, its credit rating affiliates identified on Form NRSRO, and any partner, officer, director, branch manager, and employee (including all Associated Persons) of the Firm or its credit rating affiliates (or any person occupying a similar status or performing similar functions). Any questions with respect to the meaning or scope of such conflicts should be referred to the Compliance Department.

### Conflicts of Interest

Please refer to Exhibit 6, “Identification of Conflicts of Interest Relating to the Issuance of Credit Ratings,” and Exhibit 7, “Policies and Procedures to Address and Manage Conflicts of Interest,” to Form NRSRO, which are available on the Firm’s website, www.egan-jones.com/nrsro, for a description of policies and procedures which must be followed by Associated Persons in relation to conflicts of interest.

### Gifts & Entertainment

Gifts and entertainment may create an inappropriate expectation or feeling of obligation. You are required to follow gifts standards detailed in the NRSRO rules and note that gifts that fall outside the standard are prohibited. You and members of your family may not accept gifts or gifts offered in the form of cash or cash equivalents, or special favors (other than an occasional non-cash gift of nominal value - i.e., coffee mugs with logos, etc.) from any person or organization with which the Firm has a current or potential business relationship or from any Company that the Firm does or may rate. Further, business gifts to, and entertainment of, non-government employees in connection with business discussions or the development of business relationships are only appropriate if they are in the ordinary course of business and their value is modest. If you have any questions about the appropriateness of a business gift or expense, you should contact your supervisor or the DCO. Associated Persons are required to receive preapproval from the Compliance Department before giving gifts and any gifts which are received need to be reported to the Compliance Department to ensure the gift is appropriate per NRSRO rules.

Giving gifts to, or entertaining, government employees (including employees of international organizations and or regulatory bodies) may be prohibited. The United States Foreign Corrupt Practices Act, for example, prohibits giving anything of value, directly or indirectly, to any “foreign official” for the purpose of obtaining or retaining business. Check with your supervisor or the DCO if you have any questions about the acceptability of conduct in any foreign country, including contacting foreign officials with respect to the Firm’s sovereign ratings or the sales of Firm products to foreign governments or agencies.

### Corporate Opportunities

As an Associated Person, you owe a duty to the Firm to advance its interests. No

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Associated Person may use their position or corporate property or information for personal gain. Additionally, no Associated Person may take for themselves the Firm's opportunities for sales or purchases of products, services or interests. Business opportunities that arise as a result of your position in the Firm or through the use of corporate property or information belong to the Firm.

### **Firm Systems and Assets**

The Firm's policies regulate use of the Firm's systems, including telephones, computer networks, electronic mail, and remote access capabilities. Generally, you should use the Firm's systems and properties only for legitimate Firm business. Under no conditions may you use the Firm's systems to view, store, or send unlawful, offensive or other inappropriate materials. In addition, protecting the Firm's assets against loss, theft, waste, or other misuse is the responsibility of every Associated Person. Any suspected misuse should be reported to your supervisor or the DCO.

### **Personal Securities Transactions and Holdings**

The Firm's personal securities policy is designed to address potential conflicts of interest in cases where Associated Persons have ownership positions in issuers or related entities the Firm does or may do business with. This policy applies to accounts of the Associated Person and the Associated Person's direct family members. As used herein, direct family members includes an Associated Person's spouse and minor and dependent children and references should be interpreted accordingly. If there are questions about whether someone constitutes a direct family member, the Associated Person should speak with the Compliance Department.

An Associated Person must disclose brokerage or other investment accounts, including private investments, trusts or investment clubs, in which the Associated Person has direct or indirect influence or control (such as joint ownership, trading authorization, or the authority to exercise investment discretion) or a direct or indirect beneficial ownership interest. Accounts related to money market instruments and commercial paper are also subject to this Personal Securities Transactions and Holdings policy. Notwithstanding the foregoing, an Associated Person is not required to disclose the following types of accounts or accounts that can only hold the following types of investments: open-end mutual funds; foreign exchange; cryptocurrency; pension or retirement accounts in which the Associated Person does not have investment discretion and where the Associated Person is not permitted to invest directly in securities; commodities; futures on commodities, currencies and indices; certificates of deposit; bank accounts; 529 accounts or plans; 401K or similar retirement accounts that are not able to hold individual securities or closed-end funds; and trusts or similar investment vehicles managed by a third-party, including blind trusts but excluding closed-end funds, where the Associated Person has no direct or indirect influence or control over the trust or account ('Third-Party Accounts'). All Associated Persons are required to disclose all applicable personal securities accounts and holdings, including US and non-US (China, India etc.) accounts and holdings, and, if possible, ask their account custodian to send 'duplicate' or 'interested party' statements to the Firm's

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Compliance Department.

The purchase, sale and holding of individual equity and/or fixed income securities, including options on such securities and exercise of such options, and closed-end funds is prohibited. The purchase, sale and holding of ETF's is permissible without preclearance. No preclearance is needed for purchases or sales in Third-Party Accounts. As a best practice, new Associated Persons should liquidate pre-existing positions in non-Third-Party Accounts. The Firm recognizes that liquidations may incur transaction fees and have unwanted tax consequences in taxable accounts. Affected Associated Persons may request a limited waiver from this provision of the Code from the DCO. Waiver requests must be in writing. Should the Associated Person wish to liquidate a position in respect of which a waiver had previously been granted, he/she must request, and receive, preclearance approval from the DCO, noting the name of the security, ticker symbol or CUSIP, and size of the position to be liquidated. The DCO will check with the Firm's Ratings Group to make sure the Firm has no active engagements or outstanding work with the issuer or the security involved, and, if there are no other potential conflicts identified, open up a trading window during which the Associated Person can make the trade. DCO trading approvals generally are valid for five business days unless specified.

### **Insider Trading Policies and Procedures**

NRSRO firms are required to establish, maintain, enforce, and document policies and procedures to prevent the misuse of material non-public information ('MNPI'). MNPI generally includes (a) information that is not generally known to the public about the Firm, its clients, or other parties with whom the Firm has a relationship and that have an expectation of confidentiality ('Confidential Information'); and (b) non-public information that might be useful to competitors or that could be harmful to the Firm or its customers if disclosed, such as, the names of clients, intellectual property, IT security systems, business plans, personal employee information and unpublished financial information ('Proprietary information' or, collectively, 'Inside Information').

Inside Information generated and gathered in our business is a valuable asset of the Firm. Protecting Inside Information is critical to the Firm's reputation for integrity and its relationship with its clients, and ensures the Firm's compliance with the complex regulations governing the financial services industry. Accordingly, you should maintain all such information in strict confidence. You should also respect the property rights, including Inside Information, of other companies.

Unauthorized use or distribution of Inside Information violates the Firm's internal policy and could be illegal. Such use or distribution could result in negative consequences for both the Firm and the individuals involved, including potential legal and disciplinary actions. Your obligation to protect the Inside Information you come into contact with continues even after you leave the Firm, and you must return all documents containing such information in your possession to the Firm upon your departure.

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If Associated Persons receive Inside Information, they are prohibited from securities trading (“Insider Trading”), whether for the account of themselves, their family, friends, or any customer, any accounts in which they have a direct or indirect beneficial interest (including accounts for family members) and any other account over which they have control, discretionary authority or power of attorney and any account on their behalf. This absolute trading prohibition is in effect should the Firm cover that issuer or not. Additionally, Associated Persons are prohibited from sending or sharing Inside Information to others. Insider Trading for these purposes is any trading activity where persons trade while in possession of material information that is not known to the investing public and which provides the holder or recipient of the information with a potentially unfair advantage in the marketplace.

The penalties for Insider Trading can be considerable, including loss of profits plus damages, criminal sanctions including incarceration, loss of employment and permanent bar from the securities industry. If you are in possession of Inside Information about a company or the market for a company’s securities, you must refrain from acting upon it. You also may not communicate Inside Information to another person who has no official need to know it.

If you are in possession of Inside Information, you are required to safeguard it based on a “legitimate business need to know” standard, and to promptly notify the DCO of any inappropriate internal or external dissemination. Please see NRSRO Exhibit 3: Policies or procedures adopted and implemented to prevent the misuse of material, nonpublic information, which is reasonably designed to prevent the misuse of Inside Information considering the Firm’s business, structure, size and other relevant factors. The Firm recognizes that in the course of its work it may be exposed to Inside Information so all Associated Persons must be able to identify material non-public information and handle such information properly.

The Firm anticipates that instances of exposure to Insider Information may occur, including inadvertently, in the course of research activities. For instance, company projections often constitute material non-public information. Any kind of trading while in possession of Inside Information may constitute Insider Trading and, at a minimum, may be improper, if not illegal. In addition, trading while in possession of information concerning the pending issuance of a rating by the Firm (front-running) is also prohibited. These activities are STRICTLY PROHIBITED. In addition, all of the Firm’s credit analysis work is highly confidential and proprietary information and shall not be disclosed. The Firm’s decision to upgrade, downgrade or, in some cases, review or update a rating on a security or an instrument, may be material non-public information and thus is to be very closely guarded prior to the rating publication. No ratings action decision should ever be disclosed, prior to dissemination, to anyone outside of the Credit Analysts at the Firm.

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## ENFORCEMENT AND ADMINISTRATION OF THE CODE

### What to Do if You Learn Inside Information

It is not illegal to learn Inside Information. The Firm or its Associated Persons may learn material non-public information from its clientele or in the course of its ratings work. It is, however, illegal for you to act or trade while in the possession of such information, or to pass it on to others other than the DCO of the Firm. You should tell the DCO that you are in receipt of such information for the purpose of sequestering the information and making sure it does not affect any ratings decision.

If you believe you have learned Inside Information, contact the Firm's DCO immediately so that they may address all potential issues and preserve the integrity of the Firm's commitment to information handling. If you become aware of a breach of these policies or of a leak of Inside Information, advise the Firm's DCO immediately. You must refrain from distributing that information to others, make sure it is not openly available on your computer and sequester it within your email to prevent easyaccessibility by others.

### How to Preserve the Confidentiality of Material Non - Public Information

The following are non-exclusive steps you must take to preserve the confidentiality of non-public information:

- • Do not discuss confidential matters (in person or via phone) in elevators, hallways, restaurants, airplanes, taxicabs or any place where you can be overheard.
- • Do not leave sensitive memoranda on your desk or in other places where they can be read by others. Do not leave a computer terminal without exiting the file in which you are working.
- • Do not read confidential documents in public places or discard them where they can be retrieved by others. Do not carry confidential documents in an exposed manner.
- • On drafts of sensitive documents use redacted names if necessary.
- • Do not discuss confidential business information with spouses, other relatives or friends.
- • Avoid even the appearance of impropriety. Serious repercussions may follow from insider trading or using non-public information to benefit yourself or another. You should consult with Compliance whenever you have questions about this subject.
- • Shred confidential documents that are no longer needed per the Firm's document and record retention policies (see the Compliance Manual).

At no time may the Firm or any member of the Firm discuss or disclose such

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information or perform any personal securities and money market instruments transactions related to MNPI until the MNPI is in the public domain or otherwise is no longer material.

The Firm has a vital interest in its reputation, the reputation of its Associated Persons, and in the integrity of the securities markets. Trading while in possession of inside or confidential Firm information would destroy that reputation and integrity. The Firm is committed to preventing this conduct and to punishing any Associated Person who engages in this practice or fails to comply with the above steps designed to preserve confidentiality of Inside Information. These procedures are a vital part of the Firm’s compliance efforts and must be adhered to.

### **Provide Fair and Truthful Disclosures to Our Clients & the Public**

The Firm has a responsibility under the law to communicate effectively so that its clients are provided with full and accurate information in all material respects. To the extent that you are involved in the preparation of materials for dissemination to clients, you should be careful to ensure that the information in these materials is truthful, accurate and complete. In particular, the Firm’s officers and directors shall endeavor to promote full, fair, accurate, timely and understandable disclosure in the Firm’s communications, including documents that the Firm files with or submits to the SEC Staff and other regulatory bodies. If you become aware of a materially inaccurate or misleading statement in any communication to the Firm’s clients, the SEC Staff, other regulatory bodies, or the public, you should report it immediately to your supervisor and the Compliance Department.

### **Reporting Violations**

You are the Firm’s first line of defense against unethical or improper business practices. If you observe or become aware of any conduct that you believe is unethical or improper - whether by another employee, a consultant, a supplier, a client, or other third party - you must communicate that information to the Firm’s ownership, compliance officer (DCO) or counsel. They will take appropriate action.

If you are a supervisor, you have an additional responsibility to take appropriate steps to stop any misconduct that you are aware of, and to prevent its occurrence and/or recurrence. Supervisors that do not take appropriate action may be held responsible for failure to supervise properly.

If you prefer to report an allegation anonymously, you must provide enough information about the incident or situation to allow the Firm to investigate properly. EJR will not tolerate any kind of retaliation for reports or complaints regarding the misconduct of others that were made in good faith. Open communication of issues and concerns by all Associated Persons without fear of retribution or retaliation is vital to the continued success of the Firm. Unless the Firm’s management learns of a problem, the Firm cannot deal with it. Concealing improper conduct often compounds the problem and may delay or hamper responses that could prevent or mitigate actual

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

damage. You may report items anonymously by contacting the Firm’s Compliance Department.

### **Measures to be Undertaken in the Event of a Material Breach**

The DCO is primarily responsibility for monitoring the Firm’s compliance with its policies and procedures. This Code of Conduct details prohibited conflicts of interest, identified conflicts and many other areas of compliance concern. All Associated Persons are required to notify the DCO whenever they become aware of a possible violation of a policy or procedure. The DCO will, upon discovering a possible violation or having been provided with evidence that indicates a possible violation, immediately assess the available evidence and document the results of the investigation. In the case of serious violations, the CEO, Independent Board members and, if appropriate, counsel, maybe contacted by the DCO and provided with the details of the violation. If the violation is indeed a material violation, the DCO will consider whether the appropriate regulatory bodies must be notified.

### **Consequences of Violating the Code**

If you are an Associated Person (other than an independent contractor), this Code forms part of the terms and conditions of your employment at the Firm; if you are an independent contractor this Code forms part of your agreement to provide services to the Firm. All Associated Persons are expected to cooperate in internal investigations of allegations of violations of the Code, and actual violations may subject you to the full range of disciplinary action by the Firm, including termination. The Firm may also report certain activities to its regulators, which could give rise to regulatory or criminal investigations. The penalties for regulatory and criminal violations may include significant fines, permanent bar from employment in the securities industry and, for criminal violations, imprisonment.

### **Attestation, Waivers, Amendments and Contact Information**

Associated Persons are required to attest their knowledge of, and compliance with, the above-mentioned policies and procedures. Waivers and amendments to this Code, and any specific policy exemptions, must be approved and documented by the DCO. It is your responsibility to be familiar with the Code. If you have any questions regarding the Firm’s Code of Conduct, the contact information is:

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By mail to: Egan-Jones Ratings Company  
Attn: Compliance Department  
61 Haverford Station Rd  
Haverford, PA 19041  
Compliance@egan-jones.com

---

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## **Handling of Confidential Information and Non-Public Information**
**(EJR Compliance Manual Effective 2/23/2021)**

During the course of the Firm's business activities, analytical staff and other Associated Persons may attend meetings and discussions with issuers, arrangers, clients or potential clients to discuss analytical components of products or methodologies or be exposed to documents (financial and otherwise) that are not generally in the public domain. Thus, there is a possibility that the Firm and/or its Associated Persons may be exposed to material, non-public information (MNPI) and/or confidential information (collectively "MNPI"). MNPI may be obtained in various ways, including verbally, through physical documentation, and in electronic form. Pursuant to Rule 17g-4 and section 15(E)(g) of the Exchange Act, the Firm is required to have policies tailored to the nature of its business which are reasonably designed to address the handling of MNPI by the NRSRO and/or its Associated Persons and prevent the:

- • The inappropriate dissemination within and outside the NRSRO of MNPI obtained in connection with the performance of credit rating services;
- • A person within the NRSRO from purchasing, selling, or otherwise benefiting from any transaction in securities or money market instruments when the person is aware of MNPI obtained in connection with the performance of credit rating services that affects the securities or money market instruments; and
- • The inappropriate dissemination within and outside the NRSRO of a pending credit rating action before issuing the credit rating on the Internet or through another readily accessible means.

Specifically, section 15(E)(g)(1) of the Exchange Act states: "Each nationally recognized statistical rating organization shall establish, maintain, and enforce written policies and procedures reasonably designed, taking into consideration the nature of the business of such nationally recognized statistical rating organization, to prevent the misuse in violation of this title, or the rules or regulations hereunder, of material, nonpublic information by such nationally recognized statistical rating organization or any person associated with such nationally recognized statistical rating organization."

MNPI will be sequestered and may not be shared with members of the Firm who are not required to know. The Firm's Employees are prohibited from using, propagating, tipping, or in any other way passing MNPI on to any other persons other than the Firm's Compliance or Legal personnel. The Firm's Compliance Department will, on an at least annual basis, review the Firm's operations to identify potential exposure to MNPI and to review policies to address identified and emerging conflicts. At no time may the Firm or any member of the Firm discuss or disclose such information to third parties other than in accordance with the Firm's Code of Conduct or perform any personal securities or money market transactions while in possession of MNPI with respect to such security.

### **Pending Credit Rating Action**

Confidential information includes information concerning a pending rating or rating-related action prior to the announcement of that rating or rating-related action. In connection with issuing ratings for transactions, the Ratings Group may not disclose or discuss potential or pending rating actions with external parties without appropriate permission from the Compliance Department, unless and until that information has been publicly disclosed.

In the event that an employee misuses or passes on MNPI, or in the event that personnel from external parties receive non-public information about potential or pending rating actions, the Compliance Department in consultation with EJR's legal department as needed, will investigate the matter fully, assess the cause and seriousness of such infraction, will determine an appropriate response and consider

whether to implement measures designed to prevent misuse of the information to the extent appropriate under the circumstances, and will document all findings, responses and such consideration.

At least annually, the firm will conduct a compliance meeting / training session during which issues, procedures and policies related to the possession and use of MNPI will be discussed.

The Firm’s information security procedures are intended to provide effective control to prevent misuse of material, nonpublic information across all information technology systems. The Firm’s employees are assigned unique Windows and email login credentials, and appropriate user’s group and access rights based on their roles and responsibilities. After exiting EJR, the former employees’ email accounts and other accesses rights shall be disabled promptly, and if applicable, incoming messages shall be redirected to the appropriate current employees. Current employees should not be able to use the former employees’ email address for sending messages.

### **Separation Between Ratings and Marketing (EJR Compliance Manual Effective 2/23/2021)**

The Firm’s Ratings Group is separated from the Sales and Marketing areas and isolated from information regarding fees.

Pursuant to Rule 17g-5(c)(6), a person who participates in negotiating, discussing, or arranging rating fees shall not participate in determining credit ratings, or developing or approving procedures or methodologies used for determining credit ratings, including qualitative and quantitative models.

Importantly, pursuant to Rule 17g-5(c)(8), no Firm Employees who participate in determining or monitoring credit ratings, or developing or approving procedures or methodologies used for determining credit ratings, including qualitative and quantitative models, may also: (i) Participate in sales or marketing of an EJR, EJP, or other ancillary product or services (including the determination and negotiation of fees for ratings, proxy, and other ancillary services); or (ii) be influenced by sales or marketing considerations. The sales staff is responsible for negotiating, discussing, and arranging fees. The responsibility of fee determination and negotiation is specifically segregated away from the Ratings so that the ratings analysts are not exposed and possibly influenced by the sales and marketing considerations.

Employees must also ensure to abide the above rules while they attend conferences, professional events, and other similar settings.

The sales and marketing department should not include commercial terms in any e-mail correspondence with ratings staff and should instruct clients of such limitation.

In the event that analysts become aware of any fees, they shall report to their supervisor (without forwarding the fee information to other analyst) and Compliance Department immediately. Unless the Compliance Department determines that Analytical staff who have come into contact with fee information have not: (a) participated in and (b) been influenced by sales or marketing considerations, they shall be removed from the process of rating that issuer or follow the direction given by the Compliance Department.

In the event that a sales/marketing employee is exposed to rating information before the rating is finalized, the employee shall promptly report such fact to the Compliance Department and follow their guidance. The Compliance Department shall review the cause of the event and provide prevention if possible.

### **Separation Between Ratings and Proxy (EJR Compliance Manual Effective 2/23/2021)**

Egan-Jones Proxy Services (“EJP”) provides research, recommendations, voting, and voting record keeping services on various shareholder proxy voting matters. The service includes an evaluation of the various agenda items in the proxy statements, recommended voting action, and an overall rating of the firms’ corporate governance. In addition, EJP provides a web-based interface to enable clients to access reports prior to the voting date which are archived thereafter for up to five years. EJP and EJR personnel do not have access to each other’s client websites, client holdings, draft reports, and other aspects related to the issuance of reports for each business. EJP personnel may not be involved in the generation of EJR ratings reports and EJR personnel may not be involved in the generation of EJP reports. The Firm restricts rating analysts from initiating meetings with current and prospective proxy clients, and they are also restricted from exposure to sales and marketing efforts. The Firm’s executives who might be involved in the rating review process must also comply with such rules even though they are allowed to communicate general Firm support to current and prospective clients.

EJP and EJR personnel must remain separate from each other’s social media websites. For example, no tweets or re-tweets are permitted from EJP to EJR, or vice-versa involving proxy positions, voting, client information, and any other information that may influence the independence of ratings. Access to any social media websites shall be approved by the Compliance Department. The Compliance Department shall oversee the social media activities on these websites.

### **Outside Business Activities (EJR Compliance Manual Effective 2/23/2021)**

Outside business activities are defined as any activity undertaken by an Associated Persons involving a business enterprise unrelated to the Firm or involving an entity which might be rated by the Firm, including any employment, paid consulting activities or serving on a company board. Excluded from this definition are activities with civic, religious, academic, non-profit, and other similar enterprises. The Firm has set up the compliance control ‘Compliance Response Sheet’ and requires Board members and Associated Persons to disclose their outside business activities periodically. [Any outside business activities must be pre-approved by the Compliance Department]. Ratings analysts specifically are not permitted to have outside business activities which conflict with the issuance of ratings. The Outside Business Activities Disclosure Form is attached below.

# ---### **OUTSIDE BUSINESS ACTIVITIES DISCLOSURE FORM**---

Egan-Jones Ratings Company (“EJR”) defines outside business activities as any activity involving a business enterprise or an entity which might be rated or covered by EJR. Civic, religious, academic, non-profit, and other similar enterprises are excluded from the definition.

Outside business activities by employee, independent contractor, or director (collectively an “Associated Person”) may present a potential conflict of interest and are required to be disclosed. Ratings analysts are not permitted to have outside business activities which conflict with the issuance of ratings.

All Associated Persons are required to disclose their outside business activities upon initial employment (or assignment for directors), annually thereafter, and when there is a change in outside business activity status.

I have outside business activities: YES ☐

If YES, please list and provide requested information for all outside business activities:

| Name of Outside Activity / Entity | Role in Outside Activity | Are You Compensated? | Does Outside Activity/Entity Know Your EJR Status? |
| --- | --- | --- | --- |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |

Print Name: _____

Signature: _____

Date: _____

---

# **Standard for E-Mail Addresses**
**(Standard for E-Mail Addresses Effective 11/07/2022)**

Background and scope- NRSROs are subject to laws and regulations pertaining to (among other things): (i) safeguarding client confidential information; and (ii) the separation of roles. This document seeks to formalize standards governing the creation and maintenance of shared e-mail addresses that are intended to be utilized with or by external parties for either analytical purposes or sales and marketing purposes. This policy is not designed to address e-mail addresses used by external parties for other purposes (e.g., complaints@egan-jones.com) or e-mail addresses designed for internal communications (e.g., employees@egan-jones.com)

Analytical communications- Shared e-mail addresses that are utilized with external parties to facilitate credit rating analysis may include only the following types of roles: Analytical and Operations. For each non-Analytical individual on a shared Analytical e-mail address, EJR's Compliance Department will retain documentation pertaining to their legitimate business need to receive the intended client communications and consideration of any conflicts of interest.

Sales and Marketing communications- Shared e-mail addresses that are utilized with external parties to facilitate sales and marketing objectives may include only the following types of roles: Sales, Marketing and Operations. For each non-Sales and Marketing individual on a shared Sales and Marketing e-mail address, EJR's Compliance Department will retain documentation pertaining to their legitimate business need to receive the intended client communications and consideration of any conflicts of interest.

Audit trail- EJR's IT Department is accountable for retaining an audit trail of each individual added to / dropped from a shared e-mail address that is utilized with external parties.

DCO Exceptions- The DCO is authorized to grant access to other individuals on a case-by-case basis, provided the DCO confirms and documents: (i) that the individual has a legitimate business purpose for obtaining access; and (ii) that Sales/Marketing and Analytical roles will not be on the same shared e-mail address.

# **Types of Credit Ratings Policy**
**(Types of Credit Ratings Policy Effective 1/10/2022)**

Contents

I. Private Credit Ratings
II. Public Credit Ratings
III. Additional Guidance Pertaining to Credit Rating Dissemination
IV. Conversions Between Types of Credit Ratings

\*\*\*

# I. Private Credit Ratings

Private credit ratings are deemed to be solicited credit ratings. A private credit rating is a credit rating that is disseminated to the requestor of the credit rating. As applicable, a private credit rating may also be disseminated to a limited number of parties/agents authorized by the requestor of the credit rating. (For this purpose, a request to post a rating on Bloomberg or similar service or to provide a rating to the NAIC or similar supervisory authority shall not alter the classification as a private credit rating.)

Whether a credit rating is to be a private or public credit rating shall be at the discretion of the client (assuming the client’s request is consistent with EJR’s policies and procedures). In the absence of clear direction from the client, a credit rating shall be deemed to be a private credit rating.

# II. Public Credit Ratings

Public credit ratings that are determined without client/issuer participation are deemed to be unsolicited credit ratings. All other public credit ratings are deemed to be solicited credit ratings.

*Subscription credit ratings-* Subscription credit ratings are generally unsolicited credit ratings. Subscription credit ratings are disseminated via EJR’s subscription platform and are generally determined using publicly available information.

*Full dissemination credit ratings-* In cases where EJR makes use of non-public/confidential information in determining a public credit rating, the rating shall be disseminated on EJR’s free public website. Such ratings may not be disseminated exclusively on EJR’s subscription platform. However, it is permissible to also post a full dissemination credit rating to EJR’s subscription platform after it has been posted to EJR’s free public website.

# III. Additional Guidance Pertaining to Credit Rating Dissemination

## Pre-Publication Notices

For issuer-paid, full dissemination credit rating actions (new, surveillance, and conversions) a , EJR’s analytical team shall disseminate to the issuer a draft rating report for the purposes of: (i) confirming there are no factual inaccuracies in the report; and (ii) confirming that EJR is not inadvertently disseminating confidential information. (Withdrawals that are not the result of credit rating analysis do not require a pre-publication notice.)

For investor-paid (or other client, non-issuer-paid), full dissemination credit rating actions (new, surveillance, and conversions), EJR’s analytical team shall disseminate to the client and to the issuer a draft rating report for the purposes of each such party: (i) confirming there are no factual inaccuracies in the report; and (ii) confirming that EJR is not inadvertently disseminating confidential information. (Withdrawals that are not the result of credit rating analysis do not require a pre-publication notice.)

The requirements of this section shall be satisfied if a party is provided with a near-final draft rating report for review. This section does not require that every draft or subsequent revised draft be made available for review.

### 17g-7 Reports

It is EJR’s policy to disseminate directly or to make available via internet link a disclosure report in the form required pursuant to Rule 17g-7(a) under the Securities Exchange Act of 1934, as amended (each, a “17g-7 Report”) for each credit rating that is disseminated.

For private credit ratings and public subscription credit ratings, the 17g-7 report is included at the end of the rating report.

For full dissemination public credit ratings, a 17g-7 Report may be included at the end of the rating report. In certain other cases in which EJR publishes a brief rating summary in lieu of a full rating report, the 17g-7 Report shall be included (directly or via a link) as a standalone document. In such cases, Analytical staff must take care to ensure that the 17g-7 Report is sufficiently detailed (as the 17g-7 Report may not reference information contained within the full rating report).

### Social Media and Press Releases

EJR may choose to make certain public full dissemination credit rating announcements via social media or press release after the credit rating has been posted to EJR’s free public website. In such cases, EJR shall include in the announcement a link to the section of EJR’s free public website that contains the applicable 17g-7 Report.

## IV. Conversions Between Types of Credit Ratings

Upon client request or for business, compliance or other internal reasons, EJR may, in its own discretion, process a conversion between certain types of credit ratings. EJR will generally not maintain both public and private credit ratings on the same company or the same instrument at the same time. The conversion scenarios detailed below are permissible. Certain other conversion scenarios may also be permissible, subject to written pre-approval from both Legal and Compliance.

*Converting a Public Subscription Credit Rating to a Private Credit Rating-* If EJR receives an external request to provide a private credit rating on a credit which is presently being rated on the subscription side based solely on public information, the recipient of the request shall notify Compliance of the request and the circumstances of the request. While Compliance pre-approval is not needed to proceed, Compliance shall nonetheless consider the facts and circumstances of the request, including the reason for such request and the nature of the requesting party, and any potential conflicts of interest presented by such request and, if appropriate, place a hold on the conversion while matters are being evaluated. Compliance may consult with Legal, General Management and other departments. In addition, if circumstances arise such that business, compliance or other internal reasons are deemed to necessitate that a rating no longer be maintained as a public rating, Compliance may

determine that such rating be converted to a private credit rating. Any determinations will be made in the sole and absolute discretion of EJR. Absent any internal decision to not proceed, the RRC will undertake the following steps:

Step 1: Prior to issuance of a private credit rating, staff shall cause a withdrawal notification to be publicly disseminated for the credit. For a rating which is a subscription rating, a notice included on the subscription section of EJR’s website shall satisfy the dissemination requirement.

Step 2: The request for a private credit rating shall be considered a new ratings request and the Analytical team shall follow applicable policies and procedures with respect to such new rating, including RRC assignment of such private credit rating.

Step 3: The Analytical team shall follow applicable policies and procedures with respect to dissemination of the newly-assigned private credit rating.

*Converting a Private Credit Rating to a Public Full Dissemination Credit Rating-* A request to convert a private credit rating to a public full dissemination credit rating may be received by a client from time to time. (For this purpose, a request to post a rating on Bloomberg or similar service or to provide a rating to the NAIC or similar supervisory authority shall not be considered a request to convert a rating to a public credit rating.) Upon receipt of such client request, the recipient of the request shall notify Compliance of the request and the circumstances of the request. While Compliance pre-approval is not needed to proceed, Compliance shall nonetheless consider the facts and circumstances of the request, including the reason for such request and the nature of the requesting party, and any potential conflicts of interest presented by such request and, if appropriate, place a hold on the conversion while matters are being evaluated. Compliance may consult with Legal, General Management and other departments. Any determinations will be made in the sole and absolute discretion of EJR. Absent any internal decision to not proceed, the RRC will undertake the following steps:

Step 1: The analytical team shall send a written notification (which may be by e-mail) to the client confirming that the rating will be converted to a public credit rating and the expected approximate date of such conversion. The notification should convey that EJR will disseminate the credit rating, along with all surveillance updates, on its free public website.

Step 2: Where the most recent rating action was issued 90 or fewer days ago, the request for a public credit rating shall not be considered a new ratings request; procedures set forth above in Section III shall be followed with respect to the dissemination of a public, full-dissemination credit rating. Where the most recent rating action was issued 91 or more days ago, the request for a public rating action shall be treated as a new rating request; the analytical team shall follow applicable analytical procedures pertaining to new public credit ratings, as well as procedures set forth above in Section III with respect to a public, full-dissemination credit rating.

**Attachment 5:** `ejrex4.pdf`

# Egan-Jones Ratings Company (“EJR”)

## Organizational Structure Chart

As of March 15, 2023

![img-0.jpeg](img-0.jpeg)

![img-1.jpeg](img-1.jpeg)

**Attachment 6:** `ejrex5.pdf`

Egan-Jones
Ratings Company

Founded 1995

Form NRSRO Exhibit #5

Attestation & Acceptance of the Egan-Jones Code of Conduct(updated October 01, 2020)

I acknowledge receipt of the Egan-Jones Ratings Company ("EJR") Code of Conduct(the "Code"), understand my obligations as detailed in the Code, including its personal securities and money market instruments transactions, insider trading and personal email usage provisions, and will adhere to those obligations in order to comply with EJR's policies and procedures.

By:_________________________

Print Name:_________________

Date:_______________________

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Egan-Jones
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Founded 1995

# Table of Content

| PRINCIPLES OF THE CODE | 3 |
| --- | --- |
| FOSTERING A CULTURE OF COMPLIANCE | 3 |
| KNOW AND UNDERSTAND THE LAWS AND REGULATIONS | 3 |
| PROFESSIONALS SERVING PROFESSIONALS | 4 |
| TRUST, BUT VERIFY | 4 |
| ACT IN THE BEST INTERESTS OF THE FIRM, CLIENTS & THE PUBLIC | 4 |
| FAIR DEALING & INTEGRITY | 4 |
| PERSONAL EMAIL USAGE POLICY | 4 |
| PROHIBITED CONFLICTS | 5 |
| CONFLICTS OF INTEREST | 7 |
| GIFTS & ENTERTAINMENT | 7 |
| CORPORATE OPPORTUNITIES | 8 |
| FIRM SYSTEMS AND ASSETS | 8 |
| PERSONAL SECURITIES TRANSACTIONS AND HOLDINGS | 8 |
| INSIDER TRADING POLICIES AND PROCEDURES | 9 |
| ENFORCEMENT AND ADMINISTRATION OF THE CODE | 11 |
| WHAT TO DO IF YOU LEARN INSIDE INFORMATION | 11 |
| HOW TO PRESERVE THE CONFIDENTIALITY OF MATERIAL NON-PUBLIC INFORMATION | 11 |
| PROVIDE FAIR AND TRUTHFUL DISCLOSURES TO OUR CLIENTS & THE PUBLIC | 12 |
| REPORTING VIOLATIONS | 12 |
| MEASURES TO BE UNDERTAKEN IN THE EVENT OF A MATERIAL BREACH | 13 |
| CONSEQUENCES OF VIOLATING THE CODE | 13 |
| ATTESTATION, WAIVERS, AMENDMENTS AND CONTACT INFORMATION | 13 |

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

# **EGAN-JONES RATINGS COMPANY  
CODE OF CONDUCT**

# **PRINCIPLES OF THE CODE**

# **Fostering a Culture of Compliance**

Egan-Jones Ratings Company (“EJR” or the “Firm”) has a Code of Conduct (the “Code”), which serves as its code of ethics. The purpose of this Code is to set forth basic principles to guide you in your day-to-day activities as an employee, or independent contractor (collectively an “Associated Person”), and to outline the expectations the Firm has of all its Associated Persons. The Firm requires its Associated Persons to read and adopt the Code to enhance their understanding of the Firm’s practices, including procedures regarding personal securities and money market instruments transactions, insider trading and personal email usage provisions. This Code is intended to provide basic principles and behavior guidelines and foster a “culture of compliance” at EJR.

The Code does not cover every regulatory, legal or ethical issue that you may confront at the Firm. Indeed, no code of conduct can attempt to anticipate the myriad of issues that arise in a fast-moving, financial-related enterprise like EJR. However, by following this Code and the Firm’s policies and procedures, by adhering to the letter and the spirit of all applicable laws and regulations, and above all, by applying sound judgment to your activities, the Associated Persons will be able to adhere not only to the regulatory requirements applicable to EJR, but also to the Firm’s commitment to compliance and ethical behavior in all of its activities.

In addition to this Code, you are required to read and acknowledge acceptance of, and compliance with, the EJR Compliance Manual (the “Manual”). The Manual contains additional information on the regulations governing NRSROs, issues that are presented in the operation of a credit ratings business, and other subjects that may or may not be addressed in this Code.

# **Know and Understand the Laws and Regulations**

EJR is registered as a nationally recognized statistical rating organization (“NRSRO”) with the U.S. Securities & Exchange Commission (“SEC” or the “Commission”) in the following classes of credit ratings: (1) financial institutions, brokers or dealers; (2) insurance companies; and (3) corporate issuers, and is therefore subject to regulation and oversight in the United States by the Commission. EJR is also subject various laws of the Commonwealth of Pennsylvania where its main office is located as well as state and local laws of each of EJR’s offices. It is your responsibility to know and understand the laws and regulations applicable to your job responsibilities, and to comply with both the letter and the spirit of these regulations, as well as the Firm’s policies and procedures. EJR requires that you avoid not only any actual misconduct but also even

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**Egan-Jones**^{}[] *Ratings Company*

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the appearance of impropriety. We require Associated Persons to rely on common sense, good judgment, individual integrity and a discerning mind to guide you in your day-to-day activities. Assume that any action you take ultimately could be publicized; therefore, when taking an action consider how you and the Firm would be perceived. When in doubt, seek guidance from the Firm’s knowledgeable regulatory and compliance personnel. Such personnel will assist you in obtaining any guidance you might need.

### **Professionals Serving Professionals**

EJR provides credit rating products and services for institutional clients. The majority of its clients have long-term high-level experience within the securities business, and have internal capability for independent analysis and investment decision making. Our product is a tool for such professional institutional clients.

### **Trust, but Verify**

Trust your instincts. If something does not appear to be lawful or ethical, or you have a question about it, ask the Firm’s Designated Compliance Officer (“DCO”), raise a flag, and ask for help from the Firm’s resources. Seek guidance rather than making assumptions that you are aware of regulatory nuances. The Firm strongly encourages you to discuss freely any concerns with knowledgeable persons, and requires you to report to the Compliance Department violations of law and regulation as well as internal policies and procedures. If you are unclear about the applicability of regulations to your job responsibilities, or if you are unsure about the propriety of a particular course of action, you should seek the advice of your supervisor and / or the Firm’s DCO. You should never assume that an activity is compliant merely because others in the industry engage in it or you do not see any pitfalls in the course of action. EJR encourages you to reach out to any of the foregoing with your questions prior to pursuing a course of action if you are not 100% positive you know the regulatory ramifications of that action.

## **ACT IN THE BEST INTERESTS OF THE FIRM, CLIENTS & THE PUBLIC**

### **Fair Dealing & Integrity**

The Firm’s basic core concept is that we provide a valuable service to our institutional clients. We rely on the trust of our clientele, for their belief and respect for our products and services, and the trust they invest in our abilities and integrity. The Firm seeks to outperform its competition fairly and honestly through timely superior analysis and experience. Every Associated Person must therefore always keep the best interests of the Firm’s clients paramount and endeavor to fairly and properly deal with its clients, competitors, public, and vendors. No one should take unfair advantage of anyone through manipulation, abuse of privileged information, misrepresentation of facts, intimidation, or any other unfair practice. No Associated Persons should ever position themselves for, or take, personal gain through their association with the Firm.

### **Personal Email Usage Policy**

EJR’s Associated Persons are strictly prohibited from using their personal email

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Egan-Jones
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accounts to transmit and/or receive confidential information and/or confidential workplace documents or to conduct workplace business, provided certain limited exceptions may be granted by the Compliance Department for employees working from home. The Code of Conduct attestation includes a clause requiring all EJR Associated Persons to attest to use only their EJR email address to transmit and/or receive Confidential Information and/or confidential work papers or to conduct workplace business. Attestations are collected and reviewed by the Compliance Department. As part of the Firm's annual compliance training, all Associated Persons will be reminded of EJR's policies and procedures with regards to safeguarding confidential information and material nonpublic information.

On a periodic basis, the Compliance Department will conduct an email search on randomly-selected Associated Persons to ensure emails sent to or received from personal email accounts did not contain Confidential Information and/or confidential workplace documents (see "Email Review Policies and Procedures" in the Compliance Manual). Email search results will be retained within a compliance surveillance folder. Any Associated Persons who use a personal email account are required to attest to their awareness of this Personal Email Usage Policy. Associated Persons who commit an infraction of this Policy may be subject to disciplinary action, including termination at the recommendation of the DCO.

Associated Persons are also prohibited from using the Firm's email to transmit material that may be deemed to be offensive to a prudent person, or emails that reflect badly on the corporate culture of the Firm. Those include (but are limited to) any email that could be deemed pornographic, sexist, hateful, racist, discriminatory, terroristic, harassing, disparaging to the Firm or any of its Associated Persons, or any email that could be considered workplace brutality. Any emails with the aforementioned content will not be tolerated in the Firm's email environment, and may lead to immediate disciplinary action, including termination. Note that these email policies also apply to personal email accounts accessed via the Firm's systems.

### Prohibited Conflicts

As an NRSRO, the Firm is prohibited under Rule 17g-5(c) of the Securities Exchange Act of 1934, as amended ("Exchange Act") from having the following conflicts of interest relating to the issuance or maintenance of a credit rating as a credit rating agency, and we therefore do not engage in the PROHIBITED CONFLICTS listed below:

(1) Issue or maintain a credit rating solicited by a person that, in the most recently ended fiscal year, provided the Firm with net revenue (as reported under §240.17g-3) equaling or exceeding 10% of the total net revenue of the Firm for the fiscal year;1

(2) Issue or maintain a credit rating with respect to a person (excluding a sovereign

1 Unless the Firm receives an exemption from the Commission.

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

nation or an agency of a sovereign nation) where the Firm, a credit analyst that participated in determining the credit rating, or a person responsible for approving the credit rating, directly owns securities of, or has any other direct ownership interest in, the person that is subject to the credit rating. Please refer to “Personal Securities Transactions and Holdings” herein for detailed information.

(3) Issue or maintain a credit rating with respect to a person associated with the Firm;

(4) Issue or maintain a credit rating where a credit analyst who participated in determining the credit rating, or a person responsible for approving the credit rating, is an officer or director of the person that is subject to the credit rating;

(5) Issue or maintain a credit rating with respect to an obligor or security where the Firm or a person associated with the Firm made recommendations to the obligor or the issuer, underwriter, or sponsor of the security about the corporate or legal structure, assets, liabilities, or activities of the obligor or issuer of the security;

When a client requests a NRSRO rating that the Firm cannot rate due to the Firm’s NRSRO registration status (e.g., municipal security, government security, foreign government security or ABS security), you must inform the client that the Firm is unable to provide a NRSRO rating for such security because the Firm is not registered as a NRSRO in such classes of credit ratings. You may not make any suggestions or recommendations to the client about ways in which the security could be altered in a way that EJR could rate it as a NRSRO.

(6) Issue or maintain a credit rating where the fee paid for the rating was negotiated, discussed, or arranged by a person within the Firm who has responsibility for participating in determining credit ratings or for developing or approving procedures or methodologies used for determining credit ratings, including qualitative and quantitative models;

(7) Issue or maintain a credit rating where a credit analyst who participated in determining or monitoring the credit rating, or a person responsible for approving the credit rating received gifts, including entertainment, from the obligor being rated, or from the issuer, underwriter, or sponsor of the securities being rated, other than items provided in the context of normal business activities such as meetings that have an aggregate value of no more than $25 (See Section “Gifts & Entertainment” below); or

(8) Issue or maintain a credit rating where a person within the Firm who participates in determining or monitoring the credit rating, or developing or approving procedures or methodologies used for determining the credit rating, including qualitative and quantitative models, also:

(i) Participate in sales or marketing of a product or service of the Firm or a product or service of an affiliate of the Firm; or

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(ii) Is influenced by sales or marketing considerations.

For the purposes of the above Prohibited Conflicts, the term person within an NRSRO means the Firm itself, its credit rating affiliates identified on Form NRSRO, and any partner, officer, director, branch manager, and employee (including all Associated Persons) of the Firm or its credit rating affiliates (or any person occupying a similar status or performing similar functions). Any questions with respect to the meaning or scope of such conflicts should be referred to the Compliance Department.

### Conflicts of Interest

Please refer to Exhibit 6, “Identification of Conflicts of Interest Relating to the Issuance of Credit Ratings,” and Exhibit 7, “Policies and Procedures to Address and Manage Conflicts of Interest,” to Form NRSRO, which are available on the Firm’s website, www.egan-jones.com/nrsro, for a description of policies and procedures which must be followed by Associated Persons in relation to conflicts of interest.

### Gifts & Entertainment

Gifts and entertainment may create an inappropriate expectation or feeling of obligation. You are required to follow gifts standards detailed in the NRSRO rules and note that gifts that fall outside the standard are prohibited. You and members of your family may not accept gifts or gifts offered in the form of cash or cash equivalents, or special favors (other than an occasional non-cash gift of nominal value - i.e., coffee mugs with logos, etc.) from any person or organization with which the Firm has a current or potential business relationship or from any Company that the Firm does or may rate. Further, business gifts to, and entertainment of, non-government employees in connection with business discussions or the development of business relationships are only appropriate if they are in the ordinary course of business and their value is modest. If you have any questions about the appropriateness of a business gift or expense, you should contact your supervisor or the DCO. Associated Persons are required to receive preapproval from the Compliance Department before giving gifts and any gifts which are received need to be reported to the Compliance Department to ensure the gift is appropriate per NRSRO rules.

Giving gifts to, or entertaining, government employees (including employees of international organizations and or regulatory bodies) may be prohibited. The United States Foreign Corrupt Practices Act, for example, prohibits giving anything of value, directly or indirectly, to any “foreign official” for the purpose of obtaining or retaining business. Check with your supervisor or the DCO if you have any questions about the acceptability of conduct in any foreign country, including contacting foreign officials with respect to the Firm’s sovereign ratings or the sales of Firm products to foreign governments or agencies.

### Corporate Opportunities

As an Associated Person, you owe a duty to the Firm to advance its interests. No

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

Associated Person may use their position or corporate property or information for personal gain. Additionally, no Associated Person may take for themselves the Firm's opportunities for sales or purchases of products, services or interests. Business opportunities that arise as a result of your position in the Firm or through the use of corporate property or information belong to the Firm.

### **Firm Systems and Assets**

The Firm's policies regulate use of the Firm's systems, including telephones, computer networks, electronic mail, and remote access capabilities. Generally, you should use the Firm's systems and properties only for legitimate Firm business. Under no conditions may you use the Firm's systems to view, store, or send unlawful, offensive or other inappropriate materials. In addition, protecting the Firm's assets against loss, theft, waste, or other misuse is the responsibility of every Associated Person. Any suspected misuse should be reported to your supervisor or the DCO.

### **Personal Securities Transactions and Holdings**

The Firm's personal securities policy is designed to address potential conflicts of interest in cases where Associated Persons have ownership positions in issuers or related entities the Firm does or may do business with. This policy applies to accounts of the Associated Person and the Associated Person's direct family members. As used herein, direct family members includes an Associated Person's spouse and minor and dependent children and references should be interpreted accordingly. If there are questions about whether someone constitutes a direct family member, the Associated Person should speak with the Compliance Department.

An Associated Person must disclose brokerage or other investment accounts, including private investments, trusts or investment clubs, in which the Associated Person has direct or indirect influence or control (such as joint ownership, trading authorization, or the authority to exercise investment discretion) or a direct or indirect beneficial ownership interest. Accounts related to money market instruments and commercial paper are also subject to this Personal Securities Transactions and Holdings policy. Notwithstanding the foregoing, an Associated Person is not required to disclose the following types of accounts or accounts that can only hold the following types of investments: open-end mutual funds; foreign exchange; cryptocurrency; pension or retirement accounts in which the Associated Person does not have investment discretion and where the Associated Person is not permitted to invest directly in securities; commodities; futures on commodities, currencies and indices; certificates of deposit; bank accounts; 529 accounts or plans; 401K or similar retirement accounts that are not able to hold individual securities or closed-end funds; and trusts or similar investment vehicles managed by a third-party, including blind trusts but excluding closed-end funds, where the Associated Person has no direct or indirect influence or control over the trust or account ('Third-Party Accounts'). All Associated Persons are required to disclose all applicable personal securities accounts and holdings, including US and non-US (China, India etc.) accounts and holdings, and, if possible, ask their account custodian to send 'duplicate' or 'interested party' statements to the Firm's

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# ---Compliance Department.

The purchase, sale and holding of individual equity and/or fixed income securities, including options on such securities and exercise of such options, and closed-end funds is prohibited. The purchase, sale and holding of ETF's is permissible without preclearance. No preclearance is needed for purchases or sales in Third-Party Accounts. As a best practice, new Associated Persons should liquidate pre-existing positions in non-Third-Party Accounts. The Firm recognizes that liquidations may incur transaction fees and have unwanted tax consequences in taxable accounts. Affected Associated Persons may request a limited waiver from this provision of the Code from the DCO. Waiver requests must be in writing. Should the Associated Person wish to liquidate a position in respect of which a waiver had previously been granted, he/she must request, and receive, pre-clearance approval from the DCO, noting the name of the security, ticker symbol or CUSIP, and size of the position to be liquidated. The DCO will check with the Firm's Ratings Group to make sure the Firm has no active engagements or outstanding work with the issuer or the security involved, and, if there are no other potential conflicts identified, open up a trading window during which the Associated Person can make the trade. DCO trading approvals generally are valid for five business days unless specified.

### Insider Trading Policies and Procedures

NRSRO firms are required to establish, maintain, enforce, and document policies and procedures to prevent the misuse of material non-public information ('MNPI'). MNPI generally includes (a) information that is not generally known to the public about the Firm, its clients, or other parties with whom the Firm has a relationship and that have an expectation of confidentiality ('Confidential Information'); and (b) non-public information that might be useful to competitors or that could be harmful to the Firm or its customers if disclosed, such as, the names of clients, intellectual property, IT security systems, business plans, personal employee information and unpublished financial information ('Proprietary information' or, collectively, 'Inside Information').

Inside Information generated and gathered in our business is a valuable asset of the Firm. Protecting Inside Information is critical to the Firm's reputation for integrity and its relationship with its clients, and ensures the Firm's compliance with the complex regulations governing the financial services industry. Accordingly, you should maintain all such information in strict confidence. You should also respect the property rights, including Inside Information, of other companies.

Unauthorized use or distribution of Inside Information violates the Firm's internal policy and could be illegal. Such use or distribution could result in negative consequences for both the Firm and the individuals involved, including potential legal and disciplinary actions. Your obligation to protect the Inside Information you come into contact with continues even after you leave the Firm, and you must return all documents containing such information in your possession to the Firm upon your departure.

---

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**Egan-Jones**^{}[] *Ratings Company*

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If Associated Persons receive Inside Information, they are prohibited from securities trading (“Insider Trading”), whether for the account of themselves, their family, friends, or any customer, any accounts in which they have a direct or indirect beneficial interest (including accounts for family members) and any other account over which they have control, discretionary authority or power of attorney and any account on their behalf. This absolute trading prohibition is in effect should the Firm cover that issuer or not. Additionally, Associated Persons are prohibited from sending or sharing Inside Information to others. Insider Trading for these purposes is any trading activity where persons trade while in possession of material information that is not known to the investing public and which provides the holder or recipient of the information with a potentially unfair advantage in the marketplace.

The penalties for Insider Trading can be considerable, including loss of profits plus damages, criminal sanctions including incarceration, loss of employment and permanent bar from the securities industry. If you are in possession of Inside Information about a company or the market for a company’s securities, you must refrain from acting upon it. You also may not communicate Inside Information to another person who has no official need to know it.

If you are in possession of Inside Information, you are required to safeguard it based on a “legitimate business need to know” standard, and to promptly notify the DCO of any inappropriate internal or external dissemination. Please see NRSRO Exhibit 3: Policies or procedures adopted and implemented to prevent the misuse of material, nonpublic information, which is reasonably designed to prevent the misuse of Inside Information considering the Firm’s business, structure, size and other relevant factors. The Firm recognizes that in the course of its work it may be exposed to Inside Information so all Associated Persons must be able to identify material non-public information and handle such information properly.

The Firm anticipates that instances of exposure to Insider Information may occur, including inadvertently, in the course of research activities. For instance, company projections often constitute material non-public information. Any kind of trading while in possession of Inside Information may constitute Insider Trading and, at a minimum, may be improper, if not illegal. In addition, trading while in possession of information concerning the pending issuance of a rating by the Firm (front-running) is also prohibited. These activities are STRICTLY PROHIBITED. In addition, all of the Firm’s credit analysis work is highly confidential and proprietary information and shall not be disclosed. The Firm’s decision to upgrade, downgrade or, in some cases, review or update a rating on a security or an instrument, may be material non-public information and thus is to be very closely guarded prior to the rating publication. No ratings action decision should ever be disclosed, prior to dissemination, to anyone outside of the Credit Analysts at the Firm.

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# ENFORCEMENT AND ADMINISTRATION OF THE CODE

# What to Do if You Learn Inside Information

It is not illegal to learn Inside Information. The Firm or its Associated Persons may learn material non-public information from its clientele or in the course of its ratings work. It is, however, illegal for you to act or trade while in the possession of such information, or to pass it on to others other than the DCO of the Firm. You should tell the DCO that you are in receipt of such information for the purpose of sequestering the information and making sure it does not affect any ratings decision.

If you believe you have learned Inside Information, contact the Firm's DCO immediately so that they may address all potential issues and preserve the integrity of the Firm's commitment to information handling. If you become aware of a breach of these policies or of a leak of Inside Information, advise the Firm's DCO immediately. You must refrain from distributing that information to others, make sure it is not openly available on your computer and sequester it within your email to prevent easy accessibility by others.

# How to Preserve the Confidentiality of Material Non - Public Information

The following are non-exclusive steps you must take to preserve the confidentiality of non-public information:

- Do not discuss confidential matters (in person or via phone) in elevators, hallways, restaurants, airplanes, taxicabs or any place where you can be overheard.
- Do not leave sensitive memoranda on your desk or in other places where they can be read by others. Do not leave a computer terminal without exiting the file in which you are working.
- Do not read confidential documents in public places or discard them where they can be retrieved by others. Do not carry confidential documents in an exposed manner.
- On drafts of sensitive documents use redacted names if necessary.
- Do not discuss confidential business information with spouses, other relatives or friends.
- Avoid even the appearance of impropriety. Serious repercussions may follow from insider trading or using non-public information to benefit yourself or another. You should consult with Compliance whenever you have questions about this subject.
- Shred confidential documents that are no longer needed per the Firm's document and record retention policies (see the Compliance Manual).

At no time may the Firm or any member of the Firm discuss or disclose such

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information or perform any personal securities and money market instruments transactions related to MNPI until the MNPI is in the public domain or otherwise is no longer material.

The Firm has a vital interest in its reputation, the reputation of its Associated Persons, and in the integrity of the securities markets. Trading while in possession of inside or confidential Firm information would destroy that reputation and integrity. The Firm is committed to preventing this conduct and to punishing any Associated Person who engages in this practice or fails to comply with the above steps designed to preserve confidentiality of Inside Information. These procedures are a vital part of the Firm's compliance efforts and must be adhered to.

### **Provide Fair and Truthful Disclosures to Our Clients & the Public**

The Firm has a responsibility under the law to communicate effectively so that its clients are provided with full and accurate information in all material respects. To the extent that you are involved in the preparation of materials for dissemination to clients, you should be careful to ensure that the information in these materials is truthful, accurate and complete. In particular, the Firm's officers and directors shall endeavor to promote full, fair, accurate, timely and understandable disclosure in the Firm's communications, including documents that the Firm files with or submits to the SEC Staff and other regulatory bodies. If you become aware of a materially inaccurate or misleading statement in any communication to the Firm's clients, the SEC Staff, other regulatory bodies, or the public, you should report it immediately to your supervisor and the Compliance Department.

### **Reporting Violations**

You are the Firm's first line of defense against unethical or improper business practices. If you observe or become aware of any conduct that you believe is unethical or improper - whether by another employee, a consultant, a supplier, a client, or other third party - you must communicate that information to the Firm's ownership, compliance officer (DCO) or counsel. They will take appropriate action.

If you are a supervisor, you have an additional responsibility to take appropriate steps to stop any misconduct that you are aware of, and to prevent its occurrence and/or recurrence. Supervisors that do not take appropriate action may be held responsible for failure to supervise properly.

If you prefer to report an allegation anonymously, you must provide enough information about the incident or situation to allow the Firm to investigate properly. EJR will not tolerate any kind of retaliation for reports or complaints regarding the misconduct of others that were made in good faith. Open communication of issues and concerns by all Associated Persons without fear of retribution or retaliation is vital to the continued success of the Firm. Unless the Firm's management learns of a problem, the Firm cannot deal with it. Concealing improper conduct often compounds the problem and may delay or hamper responses that could prevent or mitigate actual

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damage. You may report items anonymously by contacting the Firm’s Compliance Department.

### **Measures to be Undertaken in the Event of a Material Breach**

The DCO is primarily responsibility for monitoring the Firm’s compliance with its policies and procedures. This Code of Conduct details prohibited conflicts of interest, identified conflicts and many other areas of compliance concern. All Associated Persons are required to notify the DCO whenever they become aware of a possible violation of a policy or procedure. The DCO will, upon discovering a possible violation or having been provided with evidence that indicates a possible violation, immediately assess the available evidence and document the results of the investigation. In the case of serious violations, the CEO, Independent Board members and, if appropriate, counsel, maybe contacted by the DCO and provided with the details of the violation. If the violation is indeed a material violation, the DCO will consider whether the appropriate regulatory bodies must be notified.

### **Consequences of Violating the Code**

If you are an Associated Person (other than an independent contractor), this Code forms part of the terms and conditions of your employment at the Firm; if you are an independent contractor this Code forms part of your agreement to provide services to the Firm. All Associated Persons are expected to cooperate in internal investigations of allegations of violations of the Code, and actual violations may subject you to the full range of disciplinary action by the Firm, including termination. The Firm may also report certain activities to its regulators, which could give rise to regulatory or criminal investigations. The penalties for regulatory and criminal violations may include significant fines, permanent bar from employment in the securities industry and, for criminal violations, imprisonment.

### **Attestation, Waivers, Amendments and Contact Information**

Associated Persons are required to attest their knowledge of, and compliance with, the above-mentioned policies and procedures. Waivers and amendments to this Code, and any specific policy exemptions, must be approved and documented by the DCO. It is your responsibility to be familiar with the Code. If you have any questions regarding the Firm’s Code of Conduct, the contact information is:

By mail to: Egan-Jones Ratings Company  
 Attn: Compliance Department  
 61 Haverford Station Rd  
 Haverford, PA 19041  
 Compliance@egan-jones.com

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**Attachment 7:** `ejrex6.pdf`

# Egan-Jones Ratings Company (“EJR”)

## Form NRSRO Exhibit #6

### Identification of Conflicts of Interests Relating to the Issuance of Credit Ratings:

(1) EJR is paid by issuers or underwriters to determine credit ratings with respect to securities or money market instruments they issue or underwrite.

(2) EJR is paid by obligors to determine credit ratings with respect to the obligors.

(3) EJR is paid by entities to determine credit ratings with respect to obligations of third parties where such entities may own investments or have entered into transactions that could be impacted by a credit rating issued by EJR.

(4) EJR is paid for services in addition to determining credit ratings by issuers, underwriters, or obligors that have paid EJR to determine a credit rating.

(5) EJR is paid by persons for subscriptions to receive or access the credit ratings of EJR and/or for other services offered by EJR where such persons may use the credit ratings of EJR to comply with, and obtain benefits or relief under, statutes and regulations using the term “*nationally recognized statistical rating organization.*”

(6) EJR is paid by persons for subscriptions to receive or access the credit ratings of EJR and/or for other services offered by EJR where such persons also may own investments or have entered into transactions that could be favorably or adversely impacted by a credit rating issued by EJR.

(7) EJR allows persons within EJR to directly own securities or money market instruments of, or having other direct ownership interests in, issuers or obligors subject to a credit rating determined by EJR as long as they do not participate in or otherwise influence the credit rating for such issuers or obligors.

(8) EJR allows persons within EJR to have a business relationship that is more than an arm’s length ordinary course of business relationship with issuers or obligors subject to a credit rating determined by EJR as long as they do not participate in or otherwise influence the credit rating for such issuers or obligors.

**Attachment 8:** `ejrex7.pdf`

# **Egan-Jones Ratings Company**
**("EJR")**

# **Form NRSRO**

# **Exhibit #7: Policies and Procedures Address and Manage Conflicts of Interest**

- Code of Conduct
- Books and Records, Retention Notification & Disclosure
- Management of Conflicts of Interest
- Prohibited Acts and Practices Policy
- Post-Employment Conflict Determination
- Outside Business Activities
- Treatment of Complaints
- Duty to Report Tips Alleging Material Violations of Law
- Compliance Oversight - Board of Directors
- Procedure for Handling Internal Role Changes
- Policy Governing Consulting Services for Credit Rating Clients
- Other Services Guidelines
- Roles and Responsibilities Limitations: Supplemental Policies and Procedures
- Standard for E-Mail Addresses
- TRAVEL, GIFTS & ENTERTAINMENT POLICY
- Compliance Policy and Procedure- Conflict of Interest Training

Egan-Jones
Ratings Company

Founded 1995

Form NRSRO Exhibit #7

Attestation & Acceptance of the Egan-Jones Code of Conduct(updated October 01, 2020)

I acknowledge receipt of the Egan-Jones Ratings Company ("EJR") Code of Conduct(the "Code"), understand my obligations as detailed in the Code, including its personal securities and money market instruments transactions, insider trading and personal email usage provisions, and will adhere to those obligations in orderto comply with EJR's policies and procedures.

By:_________________________

Print Name:_________________

Date:_______________________

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# Table of Content

| PRINCIPLES OF THE CODE | 3 |
| --- | --- |
| FOSTERING A CULTURE OF COMPLIANCE | 3 |
| KNOW AND UNDERSTAND THE LAWS AND REGULATIONS | 3 |
| PROFESSIONALS SERVING PROFESSIONALS | 4 |
| TRUST, BUT VERIFY | 4 |
| ACT IN THE BEST INTERESTS OF THE FIRM, CLIENTS & THE PUBLIC | 4 |
| FAIR DEALING & INTEGRITY | 4 |
| PERSONAL EMAIL USAGE POLICY | 4 |
| PROHIBITED CONFLICTS | 5 |
| CONFLICTS OF INTEREST | 7 |
| GIFTS & ENTERTAINMENT | 7 |
| CORPORATE OPPORTUNITIES | 8 |
| FIRM SYSTEMS AND ASSETS | 8 |
| PERSONAL SECURITIES TRANSACTIONS AND HOLDINGS | 8 |
| INSIDER TRADING POLICIES AND PROCEDURES | 9 |
| ENFORCEMENT AND ADMINISTRATION OF THE CODE | 11 |
| WHAT TO DO IF YOU LEARN INSIDE INFORMATION | 11 |
| HOW TO PRESERVE THE CONFIDENTIALITY OF MATERIAL NON-PUBLIC INFORMATION | 11 |
| PROVIDE FAIR AND TRUTHFUL DISCLOSURES TO OUR CLIENTS & THE PUBLIC | 12 |
| REPORTING VIOLATIONS | 12 |
| MEASURES TO BE UNDERTAKEN IN THE EVENT OF A MATERIAL BREACH | 13 |
| CONSEQUENCES OF VIOLATING THE CODE | 13 |
| ATTESTATION, WAIVERS, AMENDMENTS AND CONTACT INFORMATION | 13 |

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**Egan-Jones**^{}[] *Ratings Company*

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# **EGAN-JONES RATINGS COMPANY  
CODE OF CONDUCT**

# **PRINCIPLES OF THE CODE**

# **Fostering a Culture of Compliance**

Egan-Jones Ratings Company (“EJR” or the “Firm”) has a Code of Conduct (the “Code”), which serves as its code of ethics. The purpose of this Code is to set forth basic principles to guide you in your day-to-day activities as an employee, or independent contractor (collectively an “Associated Person”), and to outline the expectations the Firm has of all its Associated Persons. The Firm requires its Associated Persons to read and adopt the Code to enhance their understanding of the Firm’s practices, including procedures regarding personal securities and money market instruments transactions, insider trading and personal email usage provisions. This Code is intended to provide basic principles and behavior guidelines and foster a “culture of compliance” at EJR.

The Code does not cover every regulatory, legal or ethical issue that you may confront at the Firm. Indeed, no code of conduct can attempt to anticipate the myriad of issues that arise in a fast-moving, financial-related enterprise like EJR. However, by following this Code and the Firm’s policies and procedures, by adhering to the letter and the spirit of all applicable laws and regulations, and above all, by applying sound judgment to your activities, the Associated Persons will be able to adhere not only to the regulatory requirements applicable to EJR, but also to the Firm’s commitment to compliance and ethical behavior in all of its activities.

In addition to this Code, you are required to read and acknowledge acceptance of, and compliance with, the EJR Compliance Manual (the “Manual”). The Manual contains additional information on the regulations governing NRSROs, issues that are presented in the operation of a credit ratings business, and other subjects that may or may not be addressed in this Code.

# **Know and Understand the Laws and Regulations**

EJR is registered as a nationally recognized statistical rating organization (“NRSRO”) with the U.S. Securities & Exchange Commission (“SEC” or the “Commission”) in the following classes of credit ratings: (1) financial institutions, brokers or dealers; (2) insurance companies; and (3) corporate issuers, and is therefore subject to regulation and oversight in the United States by the Commission. EJR is also subject various laws of the Commonwealth of Pennsylvania where its main office is located as well as state and local laws of each of EJR’s offices. It is your responsibility to know and understand the laws and regulations applicable to your job responsibilities, and to comply with both the letter and the spirit of these regulations, as well as the Firm’s policies and procedures. EJR requires that you avoid not only any actual misconduct but also even

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the appearance of impropriety. We require Associated Persons to rely on common sense, good judgment, individual integrity and a discerning mind to guide you in your day-to-day activities. Assume that any action you take ultimately could be publicized; therefore, when taking an action consider how you and the Firm would be perceived. When in doubt, seek guidance from the Firm's knowledgeable regulatory and compliance personnel. Such personnel will assist you in obtaining any guidance you might need.

### **Professionals Serving Professionals**

EJR provides credit rating products and services for institutional clients. The majority of its clients have long-term high-level experience within the securities business, and have internal capability for independent analysis and investment decision making. Our product is a tool for such professional institutional clients.

### **Trust, but Verify**

Trust your instincts. If something does not appear to be lawful or ethical, or you have a question about it, ask the Firm's Designated Compliance Officer ('DCO'), raise a flag, and ask for help from the Firm's resources. Seek guidance rather than making assumptions that you are aware of regulatory nuances. The Firm strongly encourages you to discuss freely any concerns with knowledgeable persons, and requires you to report to the Compliance Department violations of law and regulation as well as internal policies and procedures. If you are unclear about the applicability of regulations to your job responsibilities, or if you are unsure about the propriety of a particular course of action, you should seek the advice of your supervisor and / or the Firm's DCO. You should never assume that an activity is compliant merely because others in the industry engage in it or you do not see any pitfalls in the course of action. EJR encourages you to reach out to any of the foregoing with your questions prior to pursuing a course of action if you are not 100% positive you know the regulatory ramifications of that action.

## **ACT IN THE BEST INTERESTS OF THE FIRM, CLIENTS & THE PUBLIC**

### **Fair Dealing & Integrity**

The Firm's basic core concept is that we provide a valuable service to our institutional clients. We rely on the trust of our clientele, for their belief and respect for our products and services, and the trust they invest in our abilities and integrity. The Firm seeks to outperform its competition fairly and honestly through timely superior analysis and experience. Every Associated Person must therefore always keep the best interests of the Firm's clients paramount and endeavor to fairly and properly deal with its clients, competitors, public, and vendors. No one should take unfair advantage of anyone through manipulation, abuse of privileged information, misrepresentation of facts, intimidation, or any other unfair practice. No Associated Persons should ever position themselves for, or take, personal gain through their association with the Firm.

### **Personal Email Usage Policy**

EJR's Associated Persons are strictly prohibited from using their personal email

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accounts to transmit and/or receive confidential information and/or confidential workplace documents or to conduct workplace business, provided certain limited exceptions may be granted by the Compliance Department for employees working from home. The Code of Conduct attestation includes a clause requiring all EJR Associated Persons to attest to use only their EJR email address to transmit and/or receive Confidential Information and/or confidential work papers or to conduct workplace business. Attestations are collected and reviewed by the Compliance Department. As part of the Firm's annual compliance training, all Associated Persons will be reminded of EJR's policies and procedures with regards to safeguarding confidential information and material nonpublic information.

On a periodic basis, the Compliance Department will conduct an email search on randomly-selected Associated Persons to ensure emails sent to or received from personal email accounts did not contain Confidential Information and/or confidential workplace documents (see "Email Review Policies and Procedures" in the Compliance Manual). Email search results will be retained within a compliance surveillance folder. Any Associated Persons who use a personal email account are required to attest to their awareness of this Personal Email Usage Policy. Associated Persons who commit an infraction of this Policy may be subject to disciplinary action, including termination at the recommendation of the DCO.

Associated Persons are also prohibited from using the Firm's email to transmit material that may be deemed to be offensive to a prudent person, or emails that reflect badly on the corporate culture of the Firm. Those include (but are limited to) any email that could be deemed pornographic, sexist, hateful, racist, discriminatory, terroristic, harassing, disparaging to the Firm or any of its Associated Persons, or any email that could be considered workplace brutality. Any emails with the aforementioned content will not be tolerated in the Firm's email environment, and may lead to immediate disciplinary action, including termination. Note that these email policies also apply to personal email accounts accessed via the Firm's systems.

### Prohibited Conflicts

As an NRSRO, the Firm is prohibited under Rule 17g-5(c) of the Securities Exchange Act of 1934, as amended ("Exchange Act") from having the following conflicts of interest relating to the issuance or maintenance of a credit rating as a credit rating agency, and we therefore do not engage in the PROHIBITED CONFLICTS listed below:

(1) Issue or maintain a credit rating solicited by a person that, in the most recently ended fiscal year, provided the Firm with net revenue (as reported under §240.17g-3) equaling or exceeding 10% of the total net revenue of the Firm for the fiscal year;1

(2) Issue or maintain a credit rating with respect to a person (excluding a sovereign

1 Unless the Firm receives an exemption from the Commission.

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**Egan-Jones**^{}[] *Ratings Company*

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nation or an agency of a sovereign nation) where the Firm, a credit analyst that participated in determining the credit rating, or a person responsible for approving the credit rating, directly owns securities of, or has any other direct ownership interest in, the person that is subject to the credit rating. Please refer to “Personal Securities Transactions and Holdings” herein for detailed information.

(3) Issue or maintain a credit rating with respect to a person associated with the Firm;

(4) Issue or maintain a credit rating where a credit analyst who participated in determining the credit rating, or a person responsible for approving the credit rating, is an officer or director of the person that is subject to the credit rating;

(5) Issue or maintain a credit rating with respect to an obligor or security where the Firm or a person associated with the Firm made recommendations to the obligor or the issuer, underwriter, or sponsor of the security about the corporate or legal structure, assets, liabilities, or activities of the obligor or issuer of the security;

When a client requests a NRSRO rating that the Firm cannot rate due to the Firm’s NRSRO registration status (e.g., municipal security, government security, foreign government security or ABS security), you must inform the client that the Firm is unable to provide a NRSRO rating for such security because the Firm is not registered as a NRSRO in such classes of credit ratings. You may not make any suggestions or recommendations to the client about ways in which the security could be altered in a way that EJR could rate it as a NRSRO.

(6) Issue or maintain a credit rating where the fee paid for the rating was negotiated, discussed, or arranged by a person within the Firm who has responsibility for participating in determining credit ratings or for developing or approving procedures or methodologies used for determining credit ratings, including qualitative and quantitative models;

(7) Issue or maintain a credit rating where a credit analyst who participated in determining or monitoring the credit rating, or a person responsible for approving the credit rating received gifts, including entertainment, from the obligor being rated, or from the issuer, underwriter, or sponsor of the securities being rated, other than items provided in the context of normal business activities such as meetings that have an aggregate value of no more than $25 (See Section “Gifts & Entertainment” below); or

(8) Issue or maintain a credit rating where a person within the Firm who participates in determining or monitoring the credit rating, or developing or approving procedures or methodologies used for determining the credit rating, including qualitative and quantitative models, also:

(i) Participate in sales or marketing of a product or service of the Firm or a product or service of an affiliate of the Firm; or

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(ii) Is influenced by sales or marketing considerations.

For the purposes of the above Prohibited Conflicts, the term person within an NRSRO means the Firm itself, its credit rating affiliates identified on Form NRSRO, and any partner, officer, director, branch manager, and employee (including all Associated Persons) of the Firm or its credit rating affiliates (or any person occupying a similar status or performing similar functions). Any questions with respect to the meaning or scope of such conflicts should be referred to the Compliance Department.

### Conflicts of Interest

Please refer to Exhibit 6, “Identification of Conflicts of Interest Relating to the Issuance of Credit Ratings,” and Exhibit 7, “Policies and Procedures to Address and Manage Conflicts of Interest,” to Form NRSRO, which are available on the Firm’s website, www.egan-jones.com/nrsro, for a description of policies and procedures which must be followed by Associated Persons in relation to conflicts of interest.

### Gifts & Entertainment

Gifts and entertainment may create an inappropriate expectation or feeling of obligation. You are required to follow gifts standards detailed in the NRSRO rules and note that gifts that fall outside the standard are prohibited. You and members of your family may not accept gifts or gifts offered in the form of cash or cash equivalents, or special favors (other than an occasional non-cash gift of nominal value - i.e., coffee mugs with logos, etc.) from any person or organization with which the Firm has a current or potential business relationship or from any Company that the Firm does or may rate. Further, business gifts to, and entertainment of, non-government employees in connection with business discussions or the development of business relationships are only appropriate if they are in the ordinary course of business and their value is modest. If you have any questions about the appropriateness of a business gift or expense, you should contact your supervisor or the DCO. Associated Persons are required to receive preapproval from the Compliance Department before giving gifts and any gifts which are received need to be reported to the Compliance Department to ensure the gift is appropriate per NRSRO rules.

Giving gifts to, or entertaining, government employees (including employees of international organizations and or regulatory bodies) may be prohibited. The United States Foreign Corrupt Practices Act, for example, prohibits giving anything of value, directly or indirectly, to any “foreign official” for the purpose of obtaining or retaining business. Check with your supervisor or the DCO if you have any questions about the acceptability of conduct in any foreign country, including contacting foreign officials with respect to the Firm’s sovereign ratings or the sales of Firm products to foreign governments or agencies.

### Corporate Opportunities

As an Associated Person, you owe a duty to the Firm to advance its interests. No

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

Associated Person may use their position or corporate property or information for personal gain. Additionally, no Associated Person may take for themselves the Firm's opportunities for sales or purchases of products, services or interests. Business opportunities that arise as a result of your position in the Firm or through the use of corporate property or information belong to the Firm.

### **Firm Systems and Assets**

The Firm's policies regulate use of the Firm's systems, including telephones, computer networks, electronic mail, and remote access capabilities. Generally, you should use the Firm's systems and properties only for legitimate Firm business. Under no conditions may you use the Firm's systems to view, store, or send unlawful, offensive or other inappropriate materials. In addition, protecting the Firm's assets against loss, theft, waste, or other misuse is the responsibility of every Associated Person. Any suspected misuse should be reported to your supervisor or the DCO.

### **Personal Securities Transactions and Holdings**

The Firm's personal securities policy is designed to address potential conflicts of interest in cases where Associated Persons have ownership positions in issuers or related entities the Firm does or may do business with. This policy applies to accounts of the Associated Person and the Associated Person's direct family members. As used herein, direct family members includes an Associated Person's spouse and minor and dependent children and references should be interpreted accordingly. If there are questions about whether someone constitutes a direct family member, the Associated Person should speak with the Compliance Department.

An Associated Person must disclose brokerage or other investment accounts, including private investments, trusts or investment clubs, in which the Associated Person has direct or indirect influence or control (such as joint ownership, trading authorization, or the authority to exercise investment discretion) or a direct or indirect beneficial ownership interest. Accounts related to money market instruments and commercial paper are also subject to this Personal Securities Transactions and Holdings policy. Notwithstanding the foregoing, an Associated Person is not required to disclose the following types of accounts or accounts that can only hold the following types of investments: open-end mutual funds; foreign exchange; cryptocurrency; pension or retirement accounts in which the Associated Person does not have investment discretion and where the Associated Person is not permitted to invest directly in securities; commodities; futures on commodities, currencies and indices; certificates of deposit; bank accounts; 529 accounts or plans; 401K or similar retirement accounts that are not able to hold individual securities or closed-end funds; and trusts or similar investment vehicles managed by a third-party, including blind trusts but excluding closed-end funds, where the Associated Person has no direct or indirect influence or control over the trust or account ('Third-Party Accounts'). All Associated Persons are required to disclose all applicable personal securities accounts and holdings, including US and non-US (China, India etc.) accounts and holdings, and, if possible, ask their account custodian to send 'duplicate' or 'interested party' statements to the Firm's

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**Egan-Jones**^{}[] *Ratings Company*

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# ---Compliance Department.

The purchase, sale and holding of individual equity and/or fixed income securities, including options on such securities and exercise of such options, and closed-end funds is prohibited. The purchase, sale and holding of ETF's is permissible without preclearance. No preclearance is needed for purchases or sales in Third-Party Accounts. As a best practice, new Associated Persons should liquidate pre-existing positions in non-Third-Party Accounts. The Firm recognizes that liquidations may incur transaction fees and have unwanted tax consequences in taxable accounts. Affected Associated Persons may request a limited waiver from this provision of the Code from the DCO. Waiver requests must be in writing. Should the Associated Person wish to liquidate a position in respect of which a waiver had previously been granted, he/she must request, and receive, pre-clearance approval from the DCO, noting the name of the security, ticker symbol or CUSIP, and size of the position to be liquidated. The DCO will check with the Firm's Ratings Group to make sure the Firm has no active engagements or outstanding work with the issuer or the security involved, and, if there are no other potential conflicts identified, open up a trading window during which the Associated Person can make the trade. DCO trading approvals generally are valid for five business days unless specified.

### Insider Trading Policies and Procedures

NRSRO firms are required to establish, maintain, enforce, and document policies and procedures to prevent the misuse of material non-public information ('MNPI'). MNPI generally includes (a) information that is not generally known to the public about the Firm, its clients, or other parties with whom the Firm has a relationship and that have an expectation of confidentiality ('Confidential Information'); and (b) non-public information that might be useful to competitors or that could be harmful to the Firm or its customers if disclosed, such as, the names of clients, intellectual property, IT security systems, business plans, personal employee information and unpublished financial information ('Proprietary information' or, collectively, 'Inside Information').

Inside Information generated and gathered in our business is a valuable asset of the Firm. Protecting Inside Information is critical to the Firm's reputation for integrity and its relationship with its clients, and ensures the Firm's compliance with the complex regulations governing the financial services industry. Accordingly, you should maintain all such information in strict confidence. You should also respect the property rights, including Inside Information, of other companies.

Unauthorized use or distribution of Inside Information violates the Firm's internal policy and could be illegal. Such use or distribution could result in negative consequences for both the Firm and the individuals involved, including potential legal and disciplinary actions. Your obligation to protect the Inside Information you come into contact with continues even after you leave the Firm, and you must return all documents containing such information in your possession to the Firm upon your departure.

---

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**Egan-Jones**^{}[] *Ratings Company*

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If Associated Persons receive Inside Information, they are prohibited from securities trading (“Insider Trading”), whether for the account of themselves, their family, friends, or any customer, any accounts in which they have a direct or indirect beneficial interest (including accounts for family members) and any other account over which they have control, discretionary authority or power of attorney and any account on their behalf. This absolute trading prohibition is in effect should the Firm cover that issuer or not. Additionally, Associated Persons are prohibited from sending or sharing Inside Information to others. Insider Trading for these purposes is any trading activity where persons trade while in possession of material information that is not known to the investing public and which provides the holder or recipient of the information with a potentially unfair advantage in the marketplace.

The penalties for Insider Trading can be considerable, including loss of profits plus damages, criminal sanctions including incarceration, loss of employment and permanent bar from the securities industry. If you are in possession of Inside Information about a company or the market for a company’s securities, you must refrain from acting upon it. You also may not communicate Inside Information to another person who has no official need to know it.

If you are in possession of Inside Information, you are required to safeguard it based on a “legitimate business need to know” standard, and to promptly notify the DCO of any inappropriate internal or external dissemination. Please see NRSRO Exhibit 3: Policies or procedures adopted and implemented to prevent the misuse of material, nonpublic information, which is reasonably designed to prevent the misuse of Inside Information considering the Firm’s business, structure, size and other relevant factors. The Firm recognizes that in the course of its work it may be exposed to Inside Information so all Associated Persons must be able to identify material non-public information and handle such information properly.

The Firm anticipates that instances of exposure to Insider Information may occur, including inadvertently, in the course of research activities. For instance, company projections often constitute material non-public information. Any kind of trading while in possession of Inside Information may constitute Insider Trading and, at a minimum, may be improper, if not illegal. In addition, trading while in possession of information concerning the pending issuance of a rating by the Firm (front-running) is also prohibited. These activities are STRICTLY PROHIBITED. In addition, all of the Firm’s credit analysis work is highly confidential and proprietary information and shall not be disclosed. The Firm’s decision to upgrade, downgrade or, in some cases, review or update a rating on a security or an instrument, may be material non-public information and thus is to be very closely guarded prior to the rating publication. No ratings action decision should ever be disclosed, prior to dissemination, to anyone outside of the Credit Analysts at the Firm.

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Egan-Jones^{}[] Ratings Company

Founded 1995

## ENFORCEMENT AND ADMINISTRATION OF THE CODE

### What to Do if You Learn Inside Information

It is not illegal to learn Inside Information. The Firm or its Associated Persons may learn material non-public information from its clientele or in the course of its ratings work. It is, however, illegal for you to act or trade while in the possession of such information, or to pass it on to others other than the DCO of the Firm. You should tell the DCO that you are in receipt of such information for the purpose of sequestering the information and making sure it does not affect any ratings decision.

If you believe you have learned Inside Information, contact the Firm’s DCO immediately so that they may address all potential issues and preserve the integrity of the Firm’s commitment to information handling. If you become aware of a breach of these policies or of a leak of Inside Information, advise the Firm’s DCO immediately. You must refrain from distributing that information to others, make sure it is not openly available on your computer and sequester it within your email to prevent easy accessibility by others.

### How to Preserve the Confidentiality of Material Non-Public Information

The following are non-exclusive steps you must take to preserve the confidentiality of non-public information:

- • Do not discuss confidential matters (in person or via phone) in elevators, hallways, restaurants, airplanes, taxicabs or any place where you can be overheard.
- • Do not leave sensitive memoranda on your desk or in other places where they can be read by others. Do not leave a computer terminal without exiting the file in which you are working.
- • Do not read confidential documents in public places or discard them where they can be retrieved by others. Do not carry confidential documents in an exposed manner.
- • On drafts of sensitive documents use redacted names if necessary.
- • Do not discuss confidential business information with spouses, other relatives or friends.
- • Avoid even the appearance of impropriety. Serious repercussions may follow from insider trading or using non-public information to benefit yourself or another. You should consult with Compliance whenever you have questions about this subject.
- • Shred confidential documents that are no longer needed per the Firm's document and record retention policies (see the Compliance Manual).

At no time may the Firm or any member of the Firm discuss or disclose such

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**Egan-Jones**^{}[] *Ratings Company*

*Founded 1995*

information or perform any personal securities and money market instruments transactions related to MNPI until the MNPI is in the public domain or otherwise is no longer material.

The Firm has a vital interest in its reputation, the reputation of its Associated Persons, and in the integrity of the securities markets. Trading while in possession of inside or confidential Firm information would destroy that reputation and integrity. The Firm is committed to preventing this conduct and to punishing any Associated Person who engages in this practice or fails to comply with the above steps designed to preserve confidentiality of Inside Information. These procedures are a vital part of the Firm's compliance efforts and must be adhered to.

### **Provide Fair and Truthful Disclosures to Our Clients & the Public**

The Firm has a responsibility under the law to communicate effectively so that its clients are provided with full and accurate information in all material respects. To the extent that you are involved in the preparation of materials for dissemination to clients, you should be careful to ensure that the information in these materials is truthful, accurate and complete. In particular, the Firm's officers and directors shall endeavor to promote full, fair, accurate, timely and understandable disclosure in the Firm's communications, including documents that the Firm files with or submits to the SEC Staff and other regulatory bodies. If you become aware of a materially inaccurate or misleading statement in any communication to the Firm's clients, the SEC Staff, other regulatory bodies, or the public, you should report it immediately to your supervisor and the Compliance Department.

### **Reporting Violations**

You are the Firm's first line of defense against unethical or improper business practices. If you observe or become aware of any conduct that you believe is unethical or improper - whether by another employee, a consultant, a supplier, a client, or other third party - you must communicate that information to the Firm's ownership, compliance officer (DCO) or counsel. They will take appropriate action.

If you are a supervisor, you have an additional responsibility to take appropriate steps to stop any misconduct that you are aware of, and to prevent its occurrence and/or recurrence. Supervisors that do not take appropriate action may be held responsible for failure to supervise properly.

If you prefer to report an allegation anonymously, you must provide enough information about the incident or situation to allow the Firm to investigate properly. EJR will not tolerate any kind of retaliation for reports or complaints regarding the misconduct of others that were made in good faith. Open communication of issues and concerns by all Associated Persons without fear of retribution or retaliation is vital to the continued success of the Firm. Unless the Firm's management learns of a problem, the Firm cannot deal with it. Concealing improper conduct often compounds the problem and may delay or hamper responses that could prevent or mitigate actual

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*Founded 1995*

damage. You may report items anonymously by contacting the Firm’s Compliance Department.

### **Measures to be Undertaken in the Event of a Material Breach**

The DCO is primarily responsibility for monitoring the Firm’s compliance with its policies and procedures. This Code of Conduct details prohibited conflicts of interest, identified conflicts and many other areas of compliance concern. All Associated Persons are required to notify the DCO whenever they become aware of a possible violation of a policy or procedure. The DCO will, upon discovering a possible violation or having been provided with evidence that indicates a possible violation, immediately assess the available evidence and document the results of the investigation. In the case of serious violations, the CEO, Independent Board members and, if appropriate, counsel, maybe contacted by the DCO and provided with the details of the violation. If the violation is indeed a material violation, the DCO will consider whether the appropriate regulatory bodies must be notified.

### **Consequences of Violating the Code**

If you are an Associated Person (other than an independent contractor), this Code forms part of the terms and conditions of your employment at the Firm; if you are an independent contractor this Code forms part of your agreement to provide services to the Firm. All Associated Persons are expected to cooperate in internal investigations of allegations of violations of the Code, and actual violations may subject you to the full range of disciplinary action by the Firm, including termination. The Firm may also report certain activities to its regulators, which could give rise to regulatory or criminal investigations. The penalties for regulatory and criminal violations may include significant fines, permanent bar from employment in the securities industry and, for criminal violations, imprisonment.

### **Attestation, Waivers, Amendments and Contact Information**

Associated Persons are required to attest their knowledge of, and compliance with, the above-mentioned policies and procedures. Waivers and amendments to this Code, and any specific policy exemptions, must be approved and documented by the DCO. It is your responsibility to be familiar with the Code. If you have any questions regarding the Firm’s Code of Conduct, the contact information is:

By mail to: Egan-Jones Ratings Company  
 Attn: Compliance Department  
 61 Haverford Station Rd  
 Haverford, PA 19041  
 Compliance@egan-jones.com

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# **Books and Records, Retention Notification & Disclosure  
(EJR Compliance Manual Effective 02/23/2021)**

The Firm has a requirement pursuant to Rule 17g-2 and other applicable rules to maintain certain Firm books and records. These retention requirements are mentioned throughout this manual but are summarized below. The Compliance Department is responsible for overseeing the overall maintenance of Firm records, for coordination with different departments on their record retention responsibilities, and for sending records to regulatory bodies upon proper request. EJR has set up a control system for monitoring the retention of the records pursuant to its record retention policy.

| Description of Record to Be Maintained | Manner of Retention | # Years |
| --- | --- | --- |
| Original Entries for General Ledger | Electronic | Three |
| Records of Current Credit Ratings (All Issuers) | Electronic | Three |
| Identity of Credit Analyst(s) Participating in Rating | Electronic | Three |
| Identity of Person Who Approved Rating before Issue | Electronic | Three |
| If Quant Model Used, Backup for Material Difference Between Implied Model Rating and Final Rating | Electronic | Three |
| If Rating was Solicited From Issuer, Investment Bank, Subscriber, or Unsolicited | Electronic | Three |
| If Solicited - Name & Address of Person or Entity Who Paid for Issuance or Maintenance of Credit Rating | Electronic | Three |
| If Solicited - Credit Rating Determined or Maintained for Person or Entity Who Paid for Issuance or Maintenance of Credit Rating | Electronic | Three |
| For Subscribers to EJR Services, Identity and Address of the Subscriber | Electronic | Three |
| List of General Types of Services and Products Offered | Electronic or Paper | Three |
| Documentation of Established Procedures and Methodologies Used to Determine Credit Ratings | Electronic | Three |
| For Structured, Money Market or Asset-Backed Ratings, List of Assets Contained in Asset Pool, Underlying Credit Rating of Assets in Pool & Manner In Which Rating Was Determined for Rated and Unrated Assets | Electronic | Three |
| Record of All Ratings, All Historical Changes In Ratings (Including Dates), and CUSIP or CIK | Electronic | Three |
| Policies and Procedures required to Establish, Maintain, and Enforce Look-Back Reviews Pursuant to Section 15E(h)(4)(A) of the Act | Electronic | Three |
| Bank Statements, Invoices, Trial Balances, Cleared Checks, Bills, and Other Significant | Paper or Electronic | Three |

| Business Records Underlying Information in Financial Reports |  |  |
| --- | --- | --- |
| Internal Records, Including Nonpublic Information and Work Papers, Used to Form the Basis of a Credit Rating | Paper or Electronic | Three |
| Credit Analysis Reports, Credit Assessment Reports, Private Credit Rating Reports, Internal Records (Including Nonpublic Information and Work Papers) Used to Form the Basis for Report Opinions | Paper or Electronic | Three |
| Compliance Reports & Compliance Exception Reports | Paper or Electronic | Three |
| Internal Audit Plans, Audit Reports, Related Documents, and Follow-Up Measures Necessary to Perform a Credit Rating Agency Audit | Paper or Electronic | Three |
| Marketing Materials Published or Otherwise Made Available to Persons Not Associated with Firm (including approvals) | Paper or Electronic | Three |
| External and Internal Communications, Including Electronic Communications, Received and Sent Related to Initiating, Determining, Maintaining, Monitoring, Changing, or Withdrawing a Credit Rating | Electronic | Three |
| Written Communication Containing Complaints on Credit Analysts, Ratings & Products | Paper or Electronic | Three |
| Internal documents that contain information, analysis, or statistics that were used to develop a procedure or methodology to treat the credit ratings of another nationally recognized statistical rating organization for the purpose of determining a credit rating for a security or money market instrument issued by an asset pool or part of any asset-backed securities transaction. | Paper or Electronic | Three years after record updated / replaced |
| For each security or money market instrument identified in the record required to be made and retained under paragraph (a)(7) of this section, any document that contains a description of how assets within such pool or as a part of such transaction not rated by the nationally recognized statistical rating organization but rated by another nationally recognized statistical rating organization were treated for the purpose of determining the credit rating of the security or money market instrument. | Paper or Electronic | Three |
| Forms NRSRO (including Exhibits and accompanying information and documents) the nationally recognized statistical rating | Paper or Electronic | Three |

| organization filed with or furnished to, as applicable, the Commission. |  |  |
| --- | --- | --- |
| The internal control structure the nationally recognized statistical rating organization is required to establish, maintain, enforce, and document an effective internal control structure governing the implementation of and adherence to policies, procedures, and methodologies for determining credit ratings pursuant to Section 15E(c)(3)(A) of the Act. | Paper or Electronic | Three years after record updated / replaced |
| The policies and procedures the nationally recognized statistical rating organization is required to establish, maintain, enforce, and document with respect to the procedures and methodologies used to determine credit ratings pursuant to Rule 17g-8(a). | Paper or Electronic | Three years after record updated / replaced |
| The policies and procedures the nationally recognized statistical rating organization is required to establish, maintain, enforce, and document with respect to credit rating symbols, numbers, or scores, pursuant to Rule 17g-8(b). | Paper or Electronic | Three years after record updated / replaced |
| The standards of training, experience, and competence for credit analysts the nationally recognized statistical rating organization is required to establish, maintain, enforce, and document pursuant to Rule 17g-9. | Paper or Electronic | Three years after record updated / replaced |

The Firm maintains its records mainly in electronic format. Ratings, disclosures, ratings changes, and Form NRSRO are maintained on the website for access by clients. Private ratings are generally delivered to the clients via email or a format mutually accepted by the client and the Firm. Email acts as the main form of communication within the Firm. Email hosting and archiving is performed and maintained by an appropriate outside electronic storage vendor. Research reports are maintained electronically, in most cases are broadcast via email to customers upon publication, and are posted to the Firm’s website. Backup files supporting the activities are maintained on servers in the main office. Paper records are backed up by scanning them so they are captured and retained.

The Firm’s email system constitutes Electronic Storage pursuant to SEC Rules 17a-4(f) and 17g-2(b)(7), and requires a notification for provisioning or a written undertaking to be supplied to the SEC. Such notice from the storageprovider should state something materially similar to:

*The undersigned acknowledges that books and records it has made or is retaining for Egan-Jones Ratings Co. are the exclusive property of Egan-Jones Ratings Co. The undersigned undertakes that upon the request of Egan-Jones Ratings Co. it will promptly provide the books and records to Egan-Jones Ratings Co. or the U.S. Securities and Exchange Commission (“Commission”) or its representatives and that upon the request of the Commission it will promptly permit examination by the Commission or its representatives of the records at any time or from time to time during business hours and promptly furnish to the Commission or its representatives a true and complete copy of any or all or any part of such books and records.*

The Compliance Department oversees obtaining such provisioning or undertaking representations and maintains copies.

*Original Entries for General Ledger* - The Accounting personnel is responsible for bookkeeping entries for the financial books and records. Backup for entries into the General Ledger are contained within the QuickBooks (QB, or other compatible software) files. Such QB files are password protected with access restricted to the Accounting personnel.

### **Management of Conflict of Interest (EJR Compliance Manual Effective 02/23/2021)**

In order to manage these conflicts, the Firm has established policies and procedures to protect the integrity of the ratings process and to reasonably prevent undue influence by non-Analytical employees or unaffiliated parties with the ratings process, refer to Form NRSRO Exhibit 7, 'Policies and Procedures to Address and Manage Conflicts of Interest.' The Compliance Department performs annual risk assessments, with a view toward prioritizing its monitoring activities.

#### *Solicited Ratings*

Private ratings are not published to the website unless requested by the client. Analysts may provide the requestor of a solicited credit rating advance notification of a credit rating prior to its formal dissemination. Analysts may take into account feedback pertaining to factual inaccuracies and errors. If a material inaccuracy or error is identified, EJR may re-convene a RRC to re-evaluate any new material information. EJR nevertheless maintains ultimate control and independence over its ratings opinions, as well as editorial control over its publications. Analysts shall adhere to more detailed guidance within the ROG pertaining to feedback and appeals.

#### *Separation between Ratings and Marketing*

The Firm's Ratings Group is separated from the Sales and Marketing areas and isolated from information regarding fees.

Pursuant to Rule 17g-5(c)(6), a person who participates in negotiating, discussing, or arranging rating fees shall not participate in determining credit ratings, or developing or approving procedures or methodologies used for determining credit ratings, including qualitative and quantitative models.

Importantly, pursuant to Rule 17g-5(c)(8), no Firm Employees who participate in determining or monitoring credit ratings, or developing or approving procedures or methodologies used for determining credit ratings, including qualitative and quantitative models, may also: (i) Participate in sales or marketing of an EJR, EJP, or other ancillary product or services (including the determination and negotiation of fees for ratings, proxy, and other ancillary services); or (ii) be influenced by sales or marketing considerations. The sales staff is responsible for negotiating, discussing, and arranging fees. The responsibility of fee determination and negotiation is specifically segregated away from the Ratings so that the ratings analysts are not exposed and possibly influenced by the sales and marketing considerations.

Employees must also ensure to abide the above rules while they attend conferences, professional events, and other similar settings.

The sales and marketing department should not include commercial terms in any e-mail correspondence with ratings staff and should instruct clients of such limitation.

In the event that analysts become aware of any fees, they shall report to their supervisor (without forwarding the

fee information to other analyst) and Compliance Department immediately. Unless the Compliance Department determines that Analytical staff who have come into contact with fee information have not: (a) participated in and (b) been influenced by sales or marketing considerations, they shall be removed from the process of rating that issuer or follow the direction given by the Compliance Department.

In the event that a sales/marketing employee is exposed to rating information before the rating is finalized, the employee shall promptly report such fact to the Compliance Department and follow their guidance. The Compliance Department shall review the cause of the event and provide prevention if possible.

### *Separation between Compliance and Marketing*

Compliance personnel are prohibited from acting in any marketing capacity.

### *Role changes within the EJR*

Staff members may from time to time transition between analytical, commercial, and general management roles. Prior to the effectiveness of any such role change, staff members must consult and work with the Compliance Department to ensure that conflicts of interest are appropriately addressed.

### *Separation between Ratings and Proxy*

Egan-Jones Proxy Services (“EJP”) provides research, recommendations, voting, and voting record keeping services on various shareholder proxy voting matters. The service includes an evaluation of the various agenda items in the proxy statements, recommended voting action, and an overall rating of the firms’ corporate governance. In addition, EJP provides a web-based interface to enable clients to access reports prior to the voting date which are archived thereafter for up to five years. EJP and EJR personnel do not have access to each other’s client websites, client holdings, draft reports, and other aspects related to the issuance of reports for each business. EJP personnel may not be involved in the generation of EJR ratings reports and EJR personnel may not be involved in the generation of EJP reports. The Firm restricts rating analysts from initiating meetings with current and prospective proxy clients, and they are also restricted from exposure to sales and marketing efforts. The Firm’s executives who might be involved in the rating review process must also comply with such rules even though they are allowed to communicate general Firm support to current and prospective clients.

EJP and EJR personnel must remain separate from each other’s social media websites. For example, no tweets or re-tweets are permitted from EJP to EJR, or vice-versa involving proxy positions, voting, client information, and any other information that may influence the independence of ratings. Access to any social media websites shall be approved by the Compliance Department. The Compliance Department shall oversee the social media activities on these websites.

### *Personal Securities Transactions and Holdings*

EJR’s personal securities policy is designed to address potential conflicts of interest in cases where its Associated Persons have ownership positions in issuers the Firm does business with. The policy generally only allows for the ownership or trading of mutual funds, ETFs and the existence of blind trusts and similar investment vehicles managed by a third-party, where the Associated Person has no direct or indirect influence or control over the trust or account (“Third-Party Accounts”). Any waivers and exemptions shall be granted by the Compliance Department. More information is available in the Code of Conduct.

### *Outside Business Activities*

Outside business activities are defined as any activity undertaken by an Associated Persons involving a business enterprise unrelated to the Firm or involving an entity which might be rated by the Firm, including any employment, paid consulting activities or serving on a company board.. Excluded from this definition are activities with civic,

religious, academic, non-profit, and other similar enterprises. The Firm has set up the compliance control 'Compliance Response Sheet' and requires Board members and Associated Persons to disclose their outside business activities periodically. [Any outside business activities must be pre-approved by the Compliance Department]. Ratings analysts specifically are not permitted to have outside business activities which conflict with the issuance of ratings. The Outside Business Activities Disclosure Form is attached in the Appendix.

### ***Monitoring Ten Percent Revenue Rule***

EJR has adopted policies, procedures and internal controls to monitor the risk of exceeding the 10% threshold of total net revenue provided in Rule 17g-5(c)(1) (the '10% Rule').

Accounting personnel will recognize net revenue periodically and calculate the percentage per client against the total net revenue by using appropriate methods. Accounting will report the calculated results to the Marketing and Compliance Departments periodically, the latter of which will analyze the reports and follow up with the appropriate actions permitted by the law. Sales and Marketing personnel must monitor client sales and alert the Accounting Department if at any time a client is expected to exceed the 10% threshold. The Board of Directors oversee and provide advice to enhance the procedures and best practices to monitor compliance with the 10% Rule.

### ***Rule 17g-5(a)(3) for ABS***

EJR is currently not a registered as an NRSRO for ABS, thus Rule 17g-5(a)(3) does not apply to the Firm. Should the Firm register for and be granted NRSRO status for ABS, compliance with this rule will be activated.

### **Prohibited Acts and Practices Policy (EJR Compliance Manual Effective 02/23/2021)**

The Firm and its Associated Persons are specifically prohibited from engaging in any unfair, coercive or abusive practices. The Firm educates its Associated Persons on the identification of unfair practices to ensure that the personnel do not engage in any such practices. Examples of such practices are conditioning ratings on certain actions or threatening to issue a lower rating for an issuer's securities than otherwise warranted based on certain actions, or threatening to lower ratings of an issuer in certain cases. Specifically, the following practices are prohibited:

1. (1) Conditioning or threatening to condition the issuance of a credit rating on the purchase by an obligor or issuer, or an affiliate of the obligor or issuer, of any other services or products, including pre-credit rating assessment products, of the Firm and its Associated Persons.
2. (2) Issuing, or offering or threatening to issue, a credit rating that is not determined in accordance with the Firm's established procedures and methodologies for determining credit ratings, based on whether the rated person, or an affiliate of the rated person, purchases or will purchase the credit rating or any other service or product of the Firm and its Associated Persons.
3. (3) Modifying, or offering or threatening to modify, a credit rating in a manner that is contrary to the Firm's established procedures and methodologies for modifying credit ratings based on whether the rated person, or an affiliate of the rated person, purchases or will purchase the credit rating or any other service or product of the Firm and its Associated Persons.
4. (4) Issuing or threatening to issue a lower credit rating, lowering or threatening to lower an existing credit rating, refusing to issue a credit rating, or withdrawing or threatening to withdraw a credit rating, with respect to securities or money market instruments issued by an asset pool or as part of any asset-backed securities transaction, unless all or a portion of the assets within such pool or part of such transaction also are rated by the Firm, where such practice is engaged in by the Firm for an anticompetitive purpose.

# **Post-Employment Conflict Determination**
**(EJR Compliance Manual Effective 02/23/2021)**

The Firm is required to perform “look-back” reviews related to former personnel who had been directly involved in the rating process.

1. Look-back reviews must be conducted in those cases where EJR knows or reasonably can be expected to know that: (1) a former EJR Associated Person has taken a position as an employee of an obligor, issuer, underwriter or sponsor of a security or money market instrument for which EJR issued a credit rating, and (2) such former EJR Associated Person participated in any capacity in determining such credit rating during the 12 month period preceding the date an action was taken with respect to the credit rating (24 months if the former EJR Associated Person worked in a European Union (EU) office) prior to departing EJR’s employ;
2. For a five year period after such former EJR Associated Person departs EJR’s employ, EJR must undertake reasonable efforts to track that person’s employment and report such information to the SEC under certain circumstances, as described in EJR’s Post-Employment Procedures; and
3. Former EJR Associated Persons in the EU and other related persons, and persons closely associated with any of them, are prohibited from taking key management positions at a rated entity for which the former EJR Associated Person participated in the credit rating process for at least six months after the last credit rating in which the former EJR Associated Person participated.

The Firm conducts a best-efforts review of 5-year subsequent employment after leaving the Firm to reasonably detect if such former Associated Person gains employment with an obligor, issuer, underwriter or sponsor of a security or money market instrument the Firm rates. The Firm will also perform such review to meet the other regulatory bodies’ requirements (such as ESMA). Please see the Look-Back Review Procedures and Transition Reports Procedures described below.

# **Look-Back Review Policy**
**(EJR Compliance Manual Appendix Effective 12/20/2021)**

# **Policy**

EJR must conduct the look-back reviews pursuant to section 15E(h)(4)(A) of the Act of 1934 to determine and address the instances a conflict of interest influenced a credit rating assigned to an obligor, security, or money market instrument, and take the necessary actions with regard to the credit rating by following the rules and instructions in section 15E(h)(4)(A), 15E(h)(5), 17g-8(c), 17g-7(a)(1)(ii)(J)(3), and any other regulatory rules if appropriate.

1. Look-back reviews must be conducted in those cases where EJR knows or can reasonably be expected to know that: (1) a former EJR employee has taken a position as an employee of an obligor, issuer, underwriter or sponsor of a security or money market instrument for which EJR issued a credit rating, and (2) such former EJR employee participated in any capacity in determining credit ratings for such entity or such security or money market instrument during the one-year period preceding the date an action was taken with respect to the credit rating (24 months if the former EJR employee worked in a European Union (EU) office) prior to departing EJR’s employ;
2. For a five year period after such former EJR employee departs EJR’s employ, EJR must undertake reasonable efforts to track that person’s employment. EJR shall report such employment information to the U.S. Securities and Exchange Commission under certain circumstances, as described in EJR’s Post Employment Procedures;

3. Former EJR employee in the EU and other related persons, and persons closely associated with any of them, are prohibited from taking key management positions at a rated entity for which the former EJR employee participated in the credit rating process for at least six months after the last credit rating in which the former EJR employee participated.

# Look-Back Review Procedures

The Firm takes adequate proactive measures, such as social-media searches and conducts a best-efforts review of subsequent employment for a 5-year period after leaving the Firm to reasonably detect if such former employee gains employment with an issuer the Firm covers. The Firm will also perform such review to meet the other regulatory bodies' requirements.

# 1. Notification - Direct Manager/ Human Resources (HR)

Upon being notified of the Employment Termination of a departing analyst, the direct manager or HR:

1) Determines a formal departure date and makes every effort to identify the new employer of the departing analyst, either by conducting a web search, social media, emailing, or by other reasonable means. If there are no results, the Compliance Department will continue to search after the analyst departs.
2) Notifies the Compliance Department in writing, as soon as practicable, of the departing analyst's Employment Termination and, if known, the identity of the new employer.

# 2. Assessment and Look-Back Review - Compliance

Upon receiving notification of a departing analyst's Employment Termination and related information, the compliance department promptly undertakes a preliminary assessment to determine the need for a Look-Back Review.

# A. Preliminary Assessment

| Questions | Search Outcome | Next Steps |
| --- | --- | --- |
| Is the new employer an entity or the issuer, underwriter, or sponsor of a security or money market instrument subject to a credit rating of the EJR? | No | The Compliance Department promptly documents that fact, and a Look-Back Review is not required. |
|  | Yes | Go to next question |
| Were any ratings of such entity or such security or money market instrument by EJR issued prior to departing analyst's departure? | No | The Compliance Department promptly documents that fact, and a Look-Back Review is not required. |
|  | Yes | Go to next question |
| Did the departing analyst participate in any capacity in determining credit ratings for such entity or such security or money market instrument during the one-year period preceding the most recent rating action taken by EJR prior to the departing analyst's departure to work for the rated entity, or the issuer, underwriter or sponsor of the rated security? | No | The Compliance Department promptly documents that fact, and a Look-Back Review is not required. |

|  | Yes | The Compliance Department promptly documents that fact and institutes a Look-Back Review |
| --- | --- | --- |

The Compliance Department then ensures that documentation of the preliminary assessment includes:

I. Name of departing analyst;
II. Date of Employment Termination;
III. Name of new employer; and
IV. As applicable, date it was determined that:

a. EJR does not rate the new employer or a security or money-market instrument issued, underwritten or sponsored by the new employer;
b. the departing analyst did not, during the Review Period, participate in determining a rating of or related to the new employer; or
c. a Look-Back Review is required.

# **B. Look-Back Review**

I. The Compliance Department shall institute and oversee the Look-Back Review to ensure it is completed in accordance with this Procedure. Upon completion of the Look-Back Review, the Compliance Department shall update the supporting records as appropriate.
II. In all cases where the Compliance Department recommends remedial action as a result of a Look-Back Review, the Compliance Department shall notify the CEO/ Board of Directors. This can be done through quarterly Board Meetings to the Board or otherwise as deemed appropriate. The Compliance Department also may notify the appropriate regulatory authorities of matters related to a Look-Back Review, and/or take other action.

# **3. Review - Direct Manager/Managing Director (“Reviewer”)**

The Reviewer is responsible for:

1) Notifying HR when an analyst terminates his or her employment with EJR.
2) Providing information requested by the Compliance Department (e.g., determining the role a departing analyst played in the rating of the entity or instrument).
3) Managing the entire review process under the oversight of the Compliance Department.
4) Promptly determining whether the current rating was influenced by a conflict of interest. In making this determination, the Reviewer shall, as appropriate, consider the nature of the departing analyst’s involvement in the rating process; review the subject rating file(s); interview members of the subject Ratings Review and Policy Committee (“RRC”); and make such other inquiries as the circumstances warrant. An analyst’s conflict of interest will be deemed to have influenced a rating if, absent the conflict, EJR would have issued a different rating.

I. If the Reviewer determines that the rating was not influenced by a conflict of interest, the Reviewer shall promptly notify the Compliance Department, in writing, of that determination, and the review process ceases.
II. If the Reviewer determines that the rating was influenced by a conflict of interest, the Reviewer shall promptly notify the Compliance Department, in writing, of that determination and shall take the following additional steps within fifteen (15) calendar days from the date of the determination that the credit rating was influenced by a conflict of interest.

5) Convene RRC to determine whether the credit rating must be revised.
6) Depending on the decision of the RRC, either:

Promptly publish that confirms the subject credit rating and includes the following:

a. An explanation that the reason for the rating action is the discovery that a credit rating assigned to the obligor, security or money market instrument in one or more prior rating actions was influenced by a conflict of interest;
b. A description of the nature of the conflict;
c. An explanation of why the affected rating is not being revised notwithstanding the presence of the conflict;
d. Date(s) and rating(s) of each prior rating issued subject to the conflict;
and
e. A description of the impact the conflict had on the prior rating action(s).

OR

Promptly publish that revises the subject credit rating and that includes the following:

a. An explanation that the reason for the action is the discovery that a credit rating assigned to the obligor, security or money market instrument in one or more prior rating actions was influenced by a conflict of interest;
b. A description of the nature of the conflict;
c. Date(s) and rating(s) of each prior rating issued subject to the conflict;
and
d. A description of the impact the conflict had on the prior rating action(s).

If the rating is not confirmed or revised within fifteen (15) calendar days of the discovery that the credit rating was influenced by a conflict of interest, the rating must be placed Under Review, with the appropriate Implication designation. The press release should indicate the reason for placing the rating Under Review is the result of discovering the credit rating was influenced by a conflict of interest. The rating should then be confirmed or revised as promptly as possible and the appropriate disclosure as referenced in paragraph 6 above should be made.

# **Transition Reports Procedures**

EJR shall report to the US Securities and Exchange Commission (“SEC”) any case which EJR knows or can reasonably be expected to know that a person formerly associated with EJR within previous five (5) years becomes employed by any obligor, issuer, underwriter or sponsor of a security or money market instrument for which EJR issued a credit rating during the 12-month period prior to such new employment. This reporting obligation applies to:

(i) Senior Officers of EJR;
(ii) EJR analyst who participated in any capacity in determining credit ratings for such obligor, issuer, underwriter, or sponsor; or
(iii) Anyone who supervised a person described in 4.(ii) above.

# **A. Determining the Need for a Transition Report**

1. Employee log: The Compliance Department maintains a log of all Senior Officers, analyst and supervisors of analyst who have terminated their employment with EJR, including those persons as to whom a Look-Back Review was not required. This log includes the following information:
- Person’s name and title;
- With regard to an analyst, supervisor, and senior officers;
- Start date and departure date; and
- List of post-EJR employer(s).

2. Annual review: On an annual basis, the Compliance Department seeks to confirm the current employer of the each Senior Officer, analyst and supervisors of analyst on the log to determine if such persons have become employed by an obligor, issuer, underwriter or sponsor of a security or money market instrument for which EJR issued an NRSRO credit rating during the past twelve (12) months prior to such employment. The details for a particular person are checked for a period of five (5) years after the end of that person's association with EJR. The Compliance Department may use all reasonable efforts to determine current employers, including social media and interviews with former colleagues. In the case of an analyst and his or her supervisors, the Compliance Department will also determine if the analyst participated in any capacity in determining credit ratings for such obligor, issuer, underwriter or sponsor.

| Questions | Search Outcome | Next Steps |
| --- | --- | --- |
| Did EJR issued an NRSRO credit rating during the past twelve (12) months prior to the current employer of the each Senior Officer, analyst and supervisors of analyst on the log have become employed by an obligor, issuer, underwriter or sponsor of a security or money market instrument? | No | The compliance promptly documents that fact, and transition report to commission is not required. |
|  | Yes | Go to next question |
| Are the employees on the log (1) Senior Officer (2) Analyst who participated in determining credit rating or (3) supervisor within five (5) years of Employment Termination from EJR | No | The compliance promptly documents that fact, and transition report to commission is not required. |
|  | Yes | The compliance promptly documents that fact, and transition report to commission is required. |

### B. Submitting NRSRO Transition Reports

The Compliance Department will submit an employment transition report to the SEC when it is determined that:

1) A Senior Officer, analyst or supervisor of an analyst has, within five (5) years of Employment Termination from EJR, obtained employment with an obligor, issuer, underwriter or sponsor of a security or money market instrument for which EJR has issued an NRSRO rating;
2) EJR has issued an NRSRO rating for such obligor, issuer, underwriter or sponsor of a security or money market instrument during the 12-month period prior to such new employment; and
3) In the case of an analyst or his or her supervisors, the analyst participated in any capacity in determining EJR NRSRO credit ratings for such obligor, issuer, underwriter or sponsor.

# **Outside Business Activities  
(EJR Compliance Manual Effective 02/23/2021)**

Outside business activities are defined as any activity undertaken by an Associated Persons involving a business enterprise unrelated to the Firm or involving an entity which might be rated by the Firm, including any employment, paid consulting activities or serving on a company board.. Excluded from this definition are activities with civic, religious, academic, non-profit, and other similar enterprises. The Firm has set up the compliance control 'Compliance Response Sheet' and requires Board members and Associated Persons to disclose their outside business activities periodically. [Any outside business activities must be pre-approved by the Compliance Department]. Ratings analysts specifically are not permitted to have outside business activities which conflict with the issuance of ratings. The Outside Business Activities Disclosure Form is included below.

# OUTSIDE BUSINESS ACTIVITIES DISCLOSURE FORM
(EJR Compliance Manual Appendix Effective 12/20/2021)

Egan-Jones Ratings Company (“EJR”) defines outside business activities as any activity involving a business enterprise or an entity which might be rated or covered by EJR. Civic, religious, academic, non-profit, and other similar enterprises are excluded from the definition.

Outside business activities by employee, independent contractor, or director (collectively an “Associated Person”) may present a potential conflict of interest, and are required to be disclosed. Ratings analysts are not permitted to have outside business activities which conflict with the issuance of ratings.

All Associated Persons are required to disclose their outside business activities upon initial employment (or assignment for directors), annually thereafter, and when there is a change in outside business activity status.

I have outside business activities: YES ☐ NO ☐

If YES, please list and provide requested information for all outside business activities:

| Name of Outside Activity / Entity | Role in Outside Activity | Are You Compensated? | Does Outside Activity/Entity Know Your EJR Status? |
| --- | --- | --- | --- |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |
| _____ | _____ | _____ | _____ |

Print Name: _________________________

Signature: _________________________

Date: _________________________

# **Treatment of Complaints**
**(EJR Compliance Manual Effective 02/23/2021)**

EJR has established a procedure so that any complaints received regarding credit ratings opinions, models, methodologies and its adherence to securities laws, rating and compliance policies and procedures are subject to standard intake, evaluation and remediation processes. (Appendix - EJR Complaint Procedures)

For purposes of this requirement, unless they meet one of the definitions above, the following are not in and of themselves considered to be Complaints:

1) general expressions of disagreement with particular Credit Ratings, the outcome of a rating group, or the models and/or methodologies used by EJR in formulating its Credit Ratings;
2) an external request to appeal a Credit Rating;
3) a comment on whether in-use methodologies for determining Credit Ratings should be updated; or
4) a comment received by EJR as part of the Request for Comment process.

Anyone may report a complaint regarding EJR or tips alleging a violation of legal or regulatory obligations directed to the DCO of EJR, as follows:

- Verbally: DCO or Compliance Department
  Telephone: 646-791-9301, (844)-495-5244
- Email: Complaints@egan-jones.com
- By Mail: Egan-Jones Ratings Company
  Attn: Compliance
  61 Haverford Station Rd
  Haverford, PA 19041
- Through the "Contact Us" page of the Egan-Jones website https://www.egan-jones.com/trial?contact=1

Complaints may be made on a confidential or anonymous basis by an employee or user of credit ratings. Complaints will be investigated according to the Company's standard procedures and a written response may be provided in due course, in cases where the identity of the complainant has been provided.

Tips alleging that an issuer of securities rated by EJR has committed or is committing a material violation of the law may be referred to an appropriate law enforcement or regulatory body as required by statute.

EJR personnel who are the direct recipients of external complaints are required to forward the details of the complaint and the complainant's contact information to the Compliance Department on a timely basis.

All complaints and relevant information, including any written complaints that were submitted by persons outside the NRSRO concerning the performance of an analyst in initiating, determining, maintaining, monitoring, changing, or withdrawing a rating which must be retained under Rule 17g-2(b)(8), will be retained for three years under Rule 17g-2(c). Please see "EJR COMPLAINT PROCEDURES" in below for detail information.

# COMPLAINT PROCEDURES - 15E(J)
(EJR Compliance Manual Appendix Effective 12/20/2021)

Pursuant to Section 15E(j) of the Securities Exchange Act of 1934 (the “Exchange Act”), EJR’s DCO is required to establish procedures for the receipt, retention, and treatment of:

(A) complaints regarding credit ratings, models, methodologies, and compliance with the securities laws and the policies and procedures developed under this section; and

(B) confidential, anonymous complaints by employees or users of credit ratings. (collectively, a “Complaint”).

# *Receipt, Retention and Treatment of Complaints*

1. Complaints may be received through various sources and may be submitted on a confidential, anonymous basis. Any employee who receives an internal or external expression of dissatisfaction (“allegation”) that appears to be a Complaint or a potential Complaint shall promptly refer it to the DCO or Compliance Department (“Compliance”). This includes both written and oral complaints.

2. The DCO shall promptly evaluate such allegation and determine whether it should be logged in EJR’s Complaint Log. If you are unsure whether an allegation received constitutes a complaint, you should immediately contact Compliance.

3. Compliance, with the relevant departments’ assistance as needed, will analyze the allegation as well as any related documentation, including the related reports, ratings or other services involved and determine if such allegation is a Complaint, as defined above.

4. If the allegation is determined to be a non-Complaint, the responsible supervisor or the relevant department will follow up regarding the issue, as appropriate. If the allegation is revealed as a potential complaint later on, the responsible supervisor or the relevant department shall promptly submit the issue to Compliance for re-assessment. The responsible supervisor shall consult with Compliance for any guidance as needed. Compliance oversees the process and may intervene as needed.

5. Compliance may conduct an investigation and interview any relevant parties for a Complaint. Compliance may reach out to EJR’s subject matter expert or external experts for any necessary information and support. Based on the investigation results, Compliance may make recommendations and take certain actions deemed appropriate. Compliance will oversee the implementation of the recommendations and the outcome of the actions to ensure that the Complaint is addressed appropriately.

6. Compliance may also consult with internal or external Legal Counsel if a Complaint involves an alleged violation of a law, rule or regulation. If the Complaint is deemed to involve a material violation, Compliance shall follow applicable procedures (including disciplinary procedures) in addressing any such violation.

7. All the above procedures, along with the supporting information, shall be promptly and fully documented per the documentation requirements in the section below.

# *Additional Notes*

1. Complaints involving an employee’s direct supervisor may be submitted to EJR Compliance. Complaints involving Compliance may be submitted to the President or the Board of Directors of EJR.

2. Complaints can be oral or written. All complaints must be in English or translated into English and forwarded to Compliance for assessment, investigation and handling. Any employee who receives a verbal Complaint should encourage the Complainant(s) to provide a written description of the basis for the Complaint, so that the details of the Complaint are clear and complete. If the Complainant chooses not to submit a written complaint, the employee must still report the oral Complaint.

3. Complaints may be shared internally only with individuals who are on a need-to-know basis, or are actively assisting in the investigation and/or resolution of the Complaint.

4. Complaints shall be followed and resolved promptly within a reasonable time frame depending on the complexity of the Complaint.

### *Documentation Requirements*

1. The complaint log will contain the following information:

- When the Complaint was received
- Who filed the Complaint (if known)
- The name of each EJR Associated Person involved in the Complaint (if applicable)
- A general description of the issues that led to the Complaint
- Correspondence/attachments related to the Complaint (originals preferred)
- The follow-up action taken in response to the Complaint and the rationale for the decision
- Date the Complaint was closed out

2. Compliance will retain all Complaints and related documents in hard copy (originals preferred) and/or electronic form for a minimum of three years after the complaint was initially received, or longer as required by regulation. The following items will be retained within the Complaints file:

- A copy or transcript of the Complaint and the date the Complaint was received,
- Documents procured during the investigation and recommendations provided by Compliance with respect to responding to the Complaint,
- Any communications sent back to the original complainant, including the dates of these communications, and
- Final actions, if any, taken by EJR in response to the Complaint.

The complaint log will be maintained by the Compliance Department.

# DUTY TO REPORT TIPS ALLEGING MATERIAL VIOLATIONS OF LAW - 15E(U)
(EJR Compliance Manual Appendix Effective 12/20/2021)

EJR follows the Rule 15E(u) requirement regarding the duty to report tips alleging material violations of law:

(1) Duty to Report: EJR shall refer to the appropriate law enforcement or regulatory authorities any information that EJR receives from a third party and finds credible that alleges that an issuer of securities rated by EJR has committed or is committing a material violation of law that has not been adjudicated by a Federal or State court.

(2) Rule of Construction: Nothing in paragraph (1) may be construed to require EJR to verify the accuracy of the information described in paragraph (1).

## **Compliance Oversight - Board of Directors (EJR Compliance Manual Effective 02/23/2021)**

The Firm has an appointed Board of Directors to comply with the provisions of the Dodd-Frank Act. The Board is comprised of a minimum of 3 persons, at least 1⁄2 of which (not fewer than 2 persons) are independent of EJR. A portion of the Independent persons shall include users of EJR ratings.

In addition to the overall board responsibilities, the Board is empowered by mandate to oversee the establishment, maintenance and enforcement of the NRSRO's policies and procedures related to the determination of credit ratings and for the addressing, management and disclosure of conflicts of interest, the effectiveness of internal control system with respect to policies and procedures for determining credit ratings and the compensation and promotion policies and practices of the firm.

The Board has final approval on all Rating Procedures and Methodologies ('Methodologies'), including the qualitative and quantitative data and models. The Board's approval shall be documented in the Board meeting minutes and other Board meeting materials as appropriate. Any internal Board members who may participate in commercial activities shall abstain from voting to approve methodologies, procedures and models used to determine credit ratings. In addition, such Board members are prohibited from attempting to influence the votes of other Board members as regards the approval of methodologies, procedures and models used to determine credit ratings. Notwithstanding these prohibitions, such Board members may become involved in governance-related matters. This may include, but is by no means limited to, data quality, model versioning, locking down models to prevent unauthorized changes, etc.

Members of the Board are compensated at a set schedule which is independent of the revenues of the firm. In most cases, Independent Board members are already established in their respective businesses and do not serve because of the compensation structure, but rather to further the interests of the Firm.

The Board normally meets on an at least quarterly basis and receives updates and / or reports from various members of the management team. The Board acts as an oversight body to the Firm's compliance efforts and acts as a direct reporting body of the CEO, DCO and RRC.

## Independent Directors

Independent Directors (and Independent Chairperson if applicable) are selected on the basis of their knowledge of the investment field, including expertise in economics, equity and fixed income markets and financial ratings, and interest and ability in assisting the Firm. Independent Directors attest and adhere to EJR's Board Code of Conduct, which is tailored to their duties and responsibilities.

In order to be considered independent, a member of the board of directors may not, other than in his or her capacity as a Board member or any committee thereof, accept any consulting, advisory, or other compensatory fee from EJR, or associate with EJR or its affiliates. Independent Directors shall be disqualified from any deliberation involving a specific rating in which they have a financial interest in the outcome of the rating.

# **Procedure for Internal Role Changes**  
**(EJR Procedure for Internal Role Changes Effective 02/23/2021)**

*Scope of this Procedure-* This procedure provides guidance to staff members when changing roles internally.

## Definitions

*Analytical Role-* The staff member participates in performing credit rating analysis, voting in a rating committee, or developing or approving models, procedures or methodologies used to determine credit ratings. An Analytical staff member may never participate in sales or marketing activities.

*Analytical Activities-* Analytical Activities means: (i) participation in determining or approving credit ratings, as well as (ii) participation in developing or approving models, methodologies or procedures that are used to determine credit ratings.

*Commercial Role-* The staff member’s primary responsibilities entail the day-to-day performance (either as an individual contributor or as a department manager) of sales and / or marketing activities. A Commercial staff member may never participate in Analytical Activities.

*General Management Role-* The staff member’s primary responsibilities entail the day-to-day performance (either as an individual contributor or as a department manager) of functions such as operations, business strategy, IT, HR, compliance, legal, risk management or similar roles. A General Management staff member may directly or indirectly supervise staff members in a Commercial Role or Analytical Role, though not in the capacity of a department head. A General Management staff member may participate from time to time in sales and marketing activities. A General Management staff member may never participate in Analytical Activities.

*Cooling Off Period-* A period of time during which a staff member may not perform some or all of the responsibilities associated with their new role. A Cooling Off Period lasts for two months from the date the staff member begins their new role. A Cooling Off Period is not required in all instances. In addition, the DCO is empowered to make certain exceptions to a Cooling Off Period, provided that enhanced compliance monitoring is performed and documented in all cases where exceptions are made. See below for further detail.

## Changing Roles

*Transitioning from a Commercial Role or a General Management Role to an Analytical Role-* Staff members shall observe a Cooling Off Period pertaining to the following activities: voting in a rating committee; developing models, procedures and methodologies used to determine credit ratings; and approving models, procedures and methodologies used to determine credit ratings. Staff members may perform credit rating analysis provided they do not act as a Primary Analyst during the Cooling Off Period. During a Cooling Off Period, staff members may attend internal meetings pertaining to models, procedures and methodologies used to determine credit ratings in order to facilitate learning / getting up to speed on analytical matters.

*Transitioning from an Analytical Role to either a Commercial Role or a General Management Role-* Staff members shall observe a Cooling Off Period pertaining to the marketing or selling of credit ratings to any Person (as defined in the federal securities laws) for whom the staff member either voted in a rating committee or acted as a Primary Analyst during the preceding six months.

*Transitioning within or between General Management Roles and Commercial Roles-* No Cooling Off Period is required.

## Other Matters to Consider

*Network Access-* Staff members are accountable for ensuring that their network appropriately reflects their role on

the day they begin their new role. Consultations with Compliance should take place prior to effective date of any new role, as necessary.

*Training-* Staff members are accountable for ensuring they complete any required training (as determined by their manager) within one month of beginning a new role.

# POLICY GOVERNING CONSULTING SERVICES FOR CREDIT RATING CLIENTS

(EJR Compliance Appendix Effective 12/20/2021)

EJR does not provide consultancy or advisory services to Rated Entities or their related third parties (whether in the role of obligor, issuer, underwriter, arranger, sponsor or otherwise) regarding the corporate or legal structure, assets, liabilities or activities of that Rated Entity or related third party. EJR does not make proposals or recommendations on the design of debt instruments.

# OTHER SERVICES GUIDELINES

(EJR Other Services Guidelines Effective 12/20/2021)

*Section 1: Background-* These guidelines have been put in place to assist staff in understanding and meeting industry best practices pertaining to the provision of non-credit ratings products and services (“Other Services”). All products or services shall be designated as a credit rating product or as an Other Service.

*Section 2: Documentation Requirements-* Before offering Other Services to clients, EJR should have in place the following final (i.e., non-draft) versions of documents:

- (a) An internal procedure and/or methodology governing the manner in which the Other Service is to be produced; and
- (b) A public-facing document (e.g., methodology, brochure or marketing document describing the Other Service).

All such procedures and documents shall be reviewed and approved by Compliance and Legal prior to use.

*Section 3: Prohibited Acts and Practices-* The purchase of Other Services is always optional and the issuance of a credit rating is never contingent on the purchase of any Other Service. The decision to purchase Other Services shall have no impact on any credit rating level. Credit ratings are determined by the RRC in accordance with established policies, procedures, methodologies and models.

The following constitute prohibited acts and practices and no staff may engage in any such conduct:

- (a) Conditioning or threatening to condition the issuance of a credit rating on the purchase of any Other Services, including pre-credit rating assessment products;
- (b) Offering to issue a credit rating that is not determined in accordance with established procedures and methodologies based on whether the person purchases the credit rating or any Other Service;
- (c) Offering to modify a credit rating in a manner that is contrary to established procedures and methodologies based on whether the person purchases the credit rating or any Other Service; and
- (d) Threatening to issue a lower ABS credit rating, refusing to issue an ABS credit rating, or withdrawing or threatening to withdraw an ABS credit rating unless all or a portion of the assets within the pool are also rated, where such practice is engaged in for an anticompetitive purpose.

Compensation for sales & marketing staff shall not be structured to incentivize any such prohibited acts and practices.

*Section 4: 17g-7 Disclosures-* The Sales and Marketing team shall maintain a procedure for identifying and notifying the Analytical team about all clients which account for revenue in respect of Other Services (but not the amount of any such revenue). Such list of clients shall be provided following the end of each calendar year. The Analytical team is accountable for making the required disclosure as part of any applicable ratings report.

*Section 5: Accounting procedures-* Prior to offering any Other Services, the Accounting group shall be consulted so that appropriate ledgers may be created and billing practices established for such Other Services.

*Section 6: Initial (pre-launch) risk assessment-* Prior to providing a new Other Service, the Sales and Marketing team shall schedule a meeting with the Compliance Department to evaluate potential conflicts of interest. The Accounting team will also be consulted to ensure proper accounting principles are applied. The DCO is accountable for documenting the results of the meeting. All identified potential conflicts of interest must be appropriately addressed prior to offering any such Other Service to third parties.

*Section 7: Periodic risk assessments-* The Compliance Department is accountable for performing and documenting Other Services risk assessments at least once each calendar year. Such risk assessment shall take into account, among other factors, the level of revenue derived from such Other Service relative to other activities, the number and nature of clients purchasing such Other Service, the number of staff involved with such Other Service and potential conflicts of interest with such Other Service.

*Section 8: Ratings Analytical staff participation-* Ratings Analytical staff are permitted to produce Other Services, but are not permitted to participate in selling or marketing Other Services.

*Section 9: Disclaimers-* Prior to providing a new Other Service, the Sales and Marketing team shall inquire with the General Counsel about appropriate disclaimers and shall ensure that any such disclaimers are included with any materials.

*Section 10: Listing of all products and services offered by the NRSRO-* EJR’s CEO or his designee is accountable for maintaining the comprehensive list of all products and services offered by the NRSRO.

## ROLES AND RESPONSIBILITIES: SUPPLEMENTAL POLICIES AND PROCEDURES

### (Roles and Responsibilities: Supplemental Policies and Procedures Effective 07/27/2022)

**Background-** The firm is required to comply with Securities Exchange Act of 1934 Release No. 95127 dated June 21, 2022 (the “Order”) which requires the establishment of policies and procedures designed to implement and maintain a prohibition on the “Subject Person” from (a) determining or monitoring any credit rating issued or maintained by the firm or (b) developing or approving procedures or methodologies used for determining credit ratings issued or maintained by the firm, including qualitative and quantitative models.

This policy is in addition to and is meant to supplement the firm’s existing policies and procedures designed to address the restrictions set forth in Rule 17g-5 under the Securities Exchange Act of 1934, as amended, and should be read in conjunction with the general restrictions and prohibitions set forth in such other policies and procedures.

**Roles and Responsibilities Pertaining to the Subject Person-** The Subject Person shall be prohibited from participating directly or indirectly, regardless of capacity, in (a) determining or monitoring any credit rating issued or maintained by the firm or (b) developing or approving procedures or methodologies used for determining credit ratings issued or maintained by the firm, including qualitative and quantitative models. This prohibition shall at all times be interpreted in such a manner as to comply with the terms of the Order.

As a result of the prohibition, the Subject Person generally may not (1) hold a role, as a credit analyst or otherwise, which is responsible for determining any credit rating, (2) assist in the review of any specific transaction or issuer for which the firm has been retained to provide a credit rating, (3) participate or vote at any committee meeting held to determine a credit rating (including but not limited to the Ratings Review and Policy Committee), (4) suggest to any member of the Analytical team an expectation about any particular credit rating level or (5) suggest to any member of the Analytical team an expectation about any particular analytical approach (collectively, the “Credit Rating Prohibitions”). The Credit Rating Prohibitions apply to all final ratings and surveillance ratings produced by the firm in its capacity as a NRSRO.

Notwithstanding the foregoing Credit Rating Prohibitions, the Subject Person may communicate with senior management of the Analytical team about general economic, political, current events or similar conditions and issues, provided such communication is not in relation to a specific credit rating or series of credit ratings to be issued by the firm. In addition, the Subject Person may participate in discussions about general staffing levels for, and overall structure of, the Analytical team, provided such discussions do not relate to any specific credit rating or series of credit ratings to be issued by the firm.

As a result of the prohibition, the Subject Person generally may not (1) draft, review or comment upon proposed credit rating methodologies (whether an existing or a new methodology), (2) participate or vote at any committee meeting held to review or approve a credit rating methodology (including but not limited to the Ratings Review and Policy Committee) or (3) vote at any meeting of the board of directors in relation to approving a credit rating methodology (collectively, the “Methodology Prohibitions”). The Methodology Prohibitions apply to all credit rating methodologies produced by the firm in its capacity as an NRSRO.

Notwithstanding the foregoing Methodology Prohibitions, the Subject Person may from time to time, and to the same extent as other members of general management, suggest to senior management of the Analytical team potential new credit rating methodologies to consider developing, so long as the Subject Person has no involvement in the decision to pursue such suggestion or other direct input into any such methodology. The Subject Person may attend discussions of the board of directors in relation to any credit rating methodology, so long as the Subject Person does not in any way influence the methodology or vote in his capacity as a director or indicate the manner in which any other director should vote in relation thereto.

As a result of the prohibition, the Subject Person generally may not (1) develop, structure, revise, modify or calibrate any credit rating model, (2) review or comment upon proposed updates or changes to credit rating models (whether an existing or a new model), (3) participate or vote at any committee meeting held to review or approve a credit rating model (including but not limited to the Ratings Review and Policy Committee) or (4) vote at any meeting of the board of directors in relation to approving a credit rating model (collectively, the “Model Prohibitions”). The Model Prohibitions apply to all credit rating models used by the firm in its capacity as an NRSRO.

Notwithstanding the foregoing Model Prohibitions, the Subject Person may attend discussions of the board of directors in relation to any credit rating model, so long as the Subject Person does not in any way influence the model or vote in his capacity as a director or indicate the manner in which any other director should vote in relation thereto. Subject to the foregoing prohibitions, the Subject Person may serve in a general management role overseeing the Analytical team and may serve as a member of the firm’s board of directors in overseeing the overall activities of the firm.

The foregoing prohibitions are meant to provide general guidance on permissible activities for the Subject Person. Subject to the particular facts and circumstances of any situation, and subject always to compliance with the terms of the Order, the Designated Compliance Officer may from time to time grant limited exceptions to the foregoing prohibitions.

Training- The firm’s Compliance Department will conduct and document specialized training for the Subject Person within thirty days of the publication hereof and thereafter at least every six months. Training will be tailored to the specific prohibition discussed above.

Compliance Monitoring- The firm’s Compliance Department will periodically (but not less than semi-annually) review a sampling of the Subject Person’s e-mails for compliance with the foregoing prohibitions. In addition, Compliance Department will periodically (but not less than semi-annually) interview analytical staff members about the Subject Person’s activities in relation to the foregoing prohibitions.

Compliance Reporting- The firm's Designated Compliance Officer will on an annual basis report to the Board of Directors the results of the Compliance Department's review of the Subject Person's compliance with the foregoing prohibitions.

Escalation Protocol- In the event the Compliance Department determines that the Subject Person has failed to comply with the specific prohibitions discussed above, the firm's Designated Compliance Officer shall promptly notify the Board of Directors.

## STANDARD FOR E-MAIL ADDRESSES

(Standard for E-Mail Addresses Effective 11/07/2022)

Background and scope- NRSROs are subject to laws and regulations pertaining to (among other things): (i) safeguarding client confidential information; and (ii) the separation of roles. This document seeks to formalize standards governing the creation and maintenance of shared e-mail addresses that are intended to be utilized with or by external parties for either analytical purposes or sales and marketing purposes. This policy is not designed to address e-mail addresses used by external parties for other purposes (e.g., complaints@egan-jones.com) or e-mail addresses designed for internal communications (e.g., employees@egan-jones.com)

Analytical communications- Shared e-mail addresses that are utilized with external parties to facilitate credit rating analysis may include only the following types of roles: Analytical and Operations. For each non-Analytical individual on a shared Analytical e-mail address, EJR's Compliance Department will retain documentation pertaining to their legitimate business need to receive the intended client communications and consideration of any conflicts of interest.

Sales and Marketing communications- Shared e-mail addresses that are utilized with external parties to facilitate sales and marketing objectives may include only the following types of roles: Sales, Marketing and Operations. For each non-Sales and Marketing individual on a shared Sales and Marketing e-mail address, EJR's Compliance Department will retain documentation pertaining to their legitimate business need to receive the intended client communications and consideration of any conflicts of interest.

Audit trail- EJR's IT Department is accountable for retaining an audit trail of each individual added to / dropped from a shared e-mail address that is utilized with external parties.

DCO Exceptions- The DCO is authorized to grant access to other individuals on a case-by-case basis, provided the DCO confirms and documents: (i) that the individual has a legitimate business purpose for obtaining access; and (ii) that Sales/Marketing and Analytical roles will not be on the same shared e-mail address.

## TRAVEL, GIFTS & ENTERTAINMENT POLICY

(Travel, Gifts & Entertainment Policy Effective September/2022)

This policy applies to all Egan-Jones Ratings Company (the 'Company') offices and its employees (which term is used in this policy to include full-time and part-time employees, contractors, interns and others working on behalf of the Company). The expense policy guidelines are effective for all employees and defines the policy and procedures pertaining to travel and gifts. It has been designed to provide guidance to employees and managers on the effective management of related costs. It is intended to describe the types of business expenditures that are reimbursable. It is the primary responsibility of each business unit to ensure that their employees are in compliance with this policy. It is the policy of the Company to reimburse employees for reasonable and approved expenses incurred in the conduct of Company business. All employees are expected to comply with this policy. Failure to do so, or misrepresentation of expenses, may result in disciplinary action, including denial of non-compliant charges and termination. This policy sets forth general guidelines meant to address typical situations. Exceptions to the guidelines may be granted by a manager depending on the circumstances, however, if possible, any such exceptions should be granted prior to incurring any extraordinary charges

# TRAVEL POLICY

## I. PRE-APPROVAL OF TRAVEL

Prior to incurring any travel expenses in the aggregate in excess of $100, all employees should receive pre-approval from their manager. A form for pre-approval of expenses is included as Annex A. The pre-approval review should include review of the purpose for the travel and appropriateness of the anticipated expenses. To the extent practicable, any anticipated expenses in excess of designated limits should be pre-approved before such expenses are incurred.

## II. TRAVEL

Travel is generally permissible to visit clients or prospective clients and to attend business-related conferences. In general, any out-of-town travel to visit clients is only permissible if multiple client visits for the same destination have been pre-arranged. As part of any pre-approval of travel, employees should include a list of all clients scheduled to be visited and/or the rationale for attending the conference. Travel may also be necessary for regulatory reasons (e.g., visits to Washington, DC) or to visit key vendors or other business partners. Travel should generally be limited to an as-necessary basis.

## A. PLANE TRAVEL

Air travel is appropriate for any destinations further than a three hour drive or train ride. For the avoidance of doubt, in general, air travel is not appropriate for travel between destinations in the U.S. northeast (locations between Washington, DC and Boston). Any air travel within the same continent should be booked in economy or coach class (or the equivalent) or the lowest cost class available; for example, this would apply for travel between the U.S. and Canada or between destinations in the U.S. Travel within the same continent may be booked on any major carrier and on a non-stop flight if available.

Air travel between the U.S. (or any continent) and any other continent (e.g., Europe, Asia, Africa) may be booked on any major carrier and may be booked in business (or the equivalent) class (but not first class or its equivalent).

The Company will not reimburse fees for extra leg room or similar special seating, charges for travel and luggage insurance or baggage fees for more than one bag (unless an extra bag is needed to transport brochures, banners or similar Company items).

## B. TRAIN TRAVEL

Trains should generally be utilized for travel less than three hours and between all U.S. northeast locations (locations between Washington, DC and Boston). Train travel should be booked in the lowest priced available class. Amtrak Acela train service may be booked for travel within the U.S.

## C. RENTAL CAR/TAXI/UBER TRAVEL

Reasonable taxi (or Uber/Lyft/other) and ground transportation costs will be reimbursed for necessary travel. If a trip will require driving over an hour, the Company will reimburse fees for a rental car. Any rental car should be an intermediate/midsize class or smaller. The Company will reimburse reasonable tolls, parking costs and gas costs for any rental car or personal car used for Company travel. Fines for parking, traffic violations or towing charges will not be reimbursed.

## D. HOTEL

Reimbursement for overnight lodging is appropriate when there's a legitimate business purpose. Hotel lodging will be reimbursed up to USD$300/night in major metropolitan areas and up to USD$250/night for regional areas; provided, however, employees will be reimbursed for the full conference rate if the employee is staying at a designated hotel for a specific conference. Depending upon the need to be in a specific location and room availability, lodging may be reimbursed at a higher rate with pre-approval. Noshow charges incurred by failing to cancel unused hotel reservations will not be reimbursed.

## E. MEALS

The Company will reimburse meals for an employee for business travel at up to USD$25 for breakfast and lunch and up to USD$40 for dinner, including tax and tip. If a hotel or conference makes meals available

for free, then the Company will not reimburse costs for such meals.

#### F. OTHER EXPENSES

The Company will reimburse reasonable cellular phone charges related to international travel. Normal cellular phone charges unrelated to international travel are not reimbursable. General travel expenses incurred during travel which are not required to be incurred by the Company are not reimbursable; examples of such non-reimbursable expenses include fees or costs related to minibar/refreshments, shoe shine, haircuts or styling, laundry and dry-cleaning, in-room movies or entertainment, spa or health club charges, car washes and sightseeing. Costs for travel of spouses, relatives or other third parties is not reimbursable by the Company.

#### III. REIMBURSEMENT PROCEDURES

An employee must complete an expense reimbursement form (to be obtained from Accounting) and provide an original receipt (including an e-mail version or photocopy) for all expenditures in excess of USD$50. A copy of a credit card statement is generally insufficient if an original receipt was able to be obtained. Any amounts incurred in a currency other than U.S. dollars should be converted to U.S. dollars at the approximate prevailing rate when such expenses were incurred. The Accounting Department shall have final authority to fix any exchange rate.

All reimbursement claims should be submitted within two weeks of the incursion of such fees, or within five business days of return from any travel in excess of two weeks.

The expense report should be submitted to accountspayable@egan-jones.com. Following receipt of a report, the report will be routed to the employee's immediate supervisor or the next higher manager for approval. No employee is authorized to approve their own, a peer's, or a superior's travel expense report (provided expenses incurred by the CEO shall be submitted to and approved by Operations). Each employee expense report should be reviewed to ensure proper business purpose, correct totals and sufficiency of supporting documentation and receipts. Receipt of manager approval is a prerequisite to reimbursement of any costs.

#### GIFTS & ENTERTAINMENT POLICY

In order to strengthen relationships and better serve clients' needs, the Company recognizes that it may be beneficial to engage with clients and third parties outside of the office. To ensure that gifts or entertainment provided are appropriate and non-lavish, employees must strictly adhere to this policy. In all cases, it is important that the exchanging of gifts and offers of entertainment not improperly influence, nor given the impression of improper influence of, any business decision.

If there are any questions as to the appropriateness of any gift or entertainment, please speak with Compliance.

#### A. RECEIPT OF GIFTS/ENTERTAINMENT

As a Nationally Recognized Statistical Rating Organization, the Company is subject to Rule 17g-5(c)(7) which prohibits the Company from 'issu[ing] or maintain[ing] a credit rating where a credit analyst who participated in determining or monitoring the credit rating, or a person responsible for approving the credit rating received gifts, including entertainment, from the obligor being rated, or from the issuer, underwriter or sponsor of the securities being rated, other than items provided in the context of normal business activities such as meetings that have an aggregate value of no more than $25.' Accordingly, no personnel of the Company should accept any gifts other than tokens or items of nominal value given in the ordinary course of business (such an inexpensive holiday gift). Any such gifts received from any one person or related group of persons should be occasional and infrequent. In no cases may an employee accept cash from any current, prospective or former client or vendor. Any gifts of excessive value or which may otherwise be considered inappropriate should be returned.

Nonetheless, if you are offered a gift or entertainment in the course of your work which you believe may create an appearance or impression of an improper influence, you must not accept such a gift. In all cases, any decisions made on behalf of the Company must be based only upon legitimate business considerations and not be influenced by any gift.

# **B. GIVING OF GIFTS/ENTERTAINMENT**

It is permissible to provide clients, prospective clients or vendors with inexpensive gifts of nominal value (generally less than $25) on an occasional and infrequent basis, such as a small holiday gift. Cash may not be given as a gift. Any gifts should be pre-approved by an employee’s manager before they are offered. In no cases may any gift be given if such gift could appear to create a conflict of interest.

In addition, it is permissible for sales and marketing staff or senior management to attend and pay for (1) a business meal or drinks or (2) a local sporting event or other activity with, a client, prospective client or vendor provided the cost is moderate and such activity is only occasional. Such meals or events must be pre-approved by an employee’s manager.

Notwithstanding the foregoing, in no cases may an employee provide a gift of any kind, or provide entertainment, to Government officials, employees or representatives of Governments, Government agencies, public international organizations, Government-owned enterprises or public pension funds, Congressional staffers or any other person associated or affiliated with an international, national, state or local Government. As used herein, “Government” refers to any federal, state or local government body and any political subdivision thereof, any agency or instrumentality thereof, any corporate instrumentality thereof or any similar body.

# **ANNEX A**

# **TRAVEL, GIFTS AND ENTERTAINMENT  
PRE-APPROVAL FORM**

Please complete all applicable items.

# **TRAVEL**

Business Purpose/Name of Conference: _________________________________________________________

Location: _____________________________________________________________________________

Date(s): _______________________________________________________________________________

Clients to be Visited: ____________________________________________________________________

Estimated Air/Train/Other Travel Cost: ___________________________________________________

Estimated Hotel Cost: ____________________________________________________________________

# **GIFTS & ENTERTAINMENT**

Business Purpose: ________________________________________________________________________

Recipient(s): ____________________________________________________________________________

Type of Gift/Entertainment: _______________________________________________________________

Estimated Cost: _________________________________________________________________________

Name of Employee: _____________________________________________________________________

Signature: _______________________________________________________________________________

Date: _____________________________________________________________________________________

# **APPROVAL**

I confirm that I have reviewed this request and have confirmed the business purpose and appropriateness of the anticipated expenses.

Name of Manager: _________________________________________________________________________

Signature: _______________________________________________________________________________

Date: _____________________________________________________________________________________

# ---► **COMPLIANCE POLICY AND PROCEDURE- CONFLICT OF INTEREST TRAINING (►)**  
**Compliance Policy and Procedure- Conflict of Interest Training Effective September/2022)**---

**Background-** Egan-Jones is required to provide all EJR personnel with conflict of interest training, per the SEC Order, Release No. 95127 released in June 2022 (the “Order”). This policy details the procedure for complying with the terms of the Order.

**Policy requirement-** The firm must provide training about the SEC’s conflicts of interest rules applicable to NRSROs (including but not limited to the prohibitions set forth in Rules 17g-5(c)(8) and 17g-5(c)(1) of the Securities Exchange Act of 1934, as amended) for all new personnel within the first 14 days of employment and annually for all personnel and must obtain written attestation from each person that he or she attended the relevant training session.

The training must also address applicable rules and regulations and relevant firm policies and procedures; in addition, the training shall explain how personnel can raise concerns and the avenues for doing so, including internally and directly via the SEC’s Whistleblower Program.

The firm’s DCO will be responsible for ensuring the required training is provided and shall also be accountable for preparing the applicable training materials and maintaining a record of training materials used during each training session and related attestations.

**Procedure-** The following sets forth the general procedure to be followed, but the DCO may make exceptions as circumstances may warrant, provided the terms of the Order must in all cases be complied with.

### I. General

The DCO shall be responsible for preparing and maintaining written training materials consistent with the Policy Requirement set forth above. The DCO shall on an at least annual basis review the materials for any necessary updates. The current version of the materials will be maintained by the Compliance department on a shared access drive. As necessary, the DCO shall consult with Legal or outside advisors about the content of the training materials.

### II. Annual Training

The Compliance department shall be responsible for administering an annual conflicts of interest training session to all firm personnel (including employees and contractors). The training shall generally occur in the third or fourth quarter of each calendar year. The training may be combined with other training sessions but shall cover all topics set out in Policy Requirement above. The training may be in-person or virtual, provided firm personnel will have access to the related materials during the presentation. The Compliance department shall maintain a list of all firm personnel and shall confirm with the Director of Accounting, Compliance and Administration or their designee the accuracy of such list. In connection with the annual training, the Compliance department shall require that all firm personnel provide a written attestation (which may be by e-mail) as to their attendance.

The Compliance department shall be responsible to reconcile the attestations received against the list of personnel and shall hold one or more additional training sessions within the calendar year until all such personnel have attended.

The Compliance department shall maintain electronic records of materials used, dates of annual training sessions and related written attestations. Any firm personnel who does not timely attend a training session shall be subject to disciplinary action, including termination.

### III. New Personnel Training

The Director of Accounting, Compliance and Administration or their designee shall be responsible to

notify the DCO of the employment start date of all new firm personnel (including employees and contractors) (each, a “New Person”). The Compliance Department shall promptly update its list of personnel accordingly.

As soon as practicable, but no later than 14 days after the start date of any New Person, the Compliance Department shall provide a training session addressing conflicts of interest as described above. The training may be combined with other training sessions but shall cover all topics set out in Policy Requirement above. The training may be in-person or virtual, provided New Persons will have access to the related materials during the presentation. One or more New Persons may attend any training session.

In connection with the New Person training, the Compliance department shall require that all attendees provide a written attestation (which may be by e-mail) as to their attendance. The Compliance department shall be responsible to reconcile the attestations received against the list of New Persons and shall hold one or more additional training sessions within the 14 day period starting from a New Person’s start date until all such New Persons have attended.

The Compliance department shall maintain electronic records of materials used, dates of training sessions and related written attestations.

Any New Person who fails to attend a training session within the applicable 14 day period shall be subject to disciplinary action, including termination

**Attachment 9:** `erjex8.pdf`

# Egan-Jones Ratings Company (“EJR”)

**Form NRSRO Exhibit #8**

### **EJR Application to Add Class of Credit Ratings**

**Certain information regarding the credit rating agency’s credit analysts and credit analyst supervisors as of March 15, 2023**

Credit Analysts and Credit Analyst Supervisors:

The total number of credit analysts, including credit analyst supervisors: **26**

The total number of credit analyst supervisors: **14**

A general description of the minimum qualifications required of the credit analysts & credit analyst supervisory personnel (education & work experience):

Credit Analysts generally are required to have a Bachelor’s degree in finance, accounting, economics, computer science, mathematics, and other applicable fields that sufficiently allow for the ability to make critical analyses and adhere to our standards of accuracy and timeliness. CFA or other professional designations are preferred.

Credit analyst supervisors generally possess advanced degrees and/or extensive experience in the applicable fields as well as ability to supervise or train junior analysts.

**Attachment 10:** `ejrex9.pdf`

**Exhibit 9.** Information about the designated compliance officer (identified in Item 4) of the Applicant/NRSRO:

- Name. **Michael Brawer**
- Employment history. **See below**
- Post-secondary education. **See below**
- Whether employed by the Applicant/NRSRO full-time or part-time. **Mr. Brawer is employed full-time by Egan-Jones Ratings, the NRSRO.**

## EMPLOYMENT HISTORY

Egan-Jones Ratings
New York, NY and Haverford, PA
*Designated Compliance Officer and*
*Chief Risk Officer*

*November 2019 - Present*

Morningstar Credit Ratings
New York, NY
*Chief Operating Officer*
*Chief Compliance Officer*

*July 2018 - November 2019*
*August 2016 - July 2018*

S&P Global
New York, NY
*Sr. Director, Enterprise Risk Management*
*Global Head of Regulatory Audit*
*Head of Compliance Monitoring and Examinations*

*2013 - 2016*
*2011 - 2013*
*2008 - 2011*

American International Group, Inc (AIG)
New York, NY
*Director, Compliance Monitoring and Examinations*

*February 2006 - February 2008*

Prudential Financial, Inc.
Newark, NJ
*Director of Compliance, International Insurance*

*April 2004 - February 2006*

AXA Advisors, LLC
Miami, FL
*Compliance Manager, International Insurance Operations*

*February 2000 - April 2004*

John Hancock Financial, Inc.
Miami, FL
*Compliance Specialist*

*April 1996 - February 2000*

## **EDUCATION**

University of Miami
Coral Gable, FL

*June 2001*

- Master of Business Administration, Finance Concentration

George Washington University
Washington, DC

*May 1993*

- Bachelor of Arts, International Affairs Concentration