EA has obtained an investment-grade rating from Egan-Jones for a subset of its bonds, and is using it to argue it does not owe creditors a 101-cent payout after the largest leveraged buyout on record. Egan-Jones is under SEC investigation over whether commercial pressure shaped its ratings, and it is certified to operate in the EU.

Electronic Arts has told creditors it holds an investment-grade rating for some of its bonds, and is using it to argue it owes them nothing after going private. About $250M is at stake.

The creditors say a default occurred because EA missed a change-of-control payout, people familiar with the matter told Bloomberg. EA says an arcane manoeuvre called defeasance means it owes no premium.

Saudi Arabia’s Public Investment Fund, Silver Lake and Jared Kushner’s Affinity Partners took EA private on 4 August for $55B, the largest leveraged buyout on record.

Two sets of notes are in dispute, $750M due 2031 and $750M due 2051. Holders can demand 101 cents if a change of control coincides with a loss of investment grade.

Fitch withdrew its investment-grade rating in late June. Moody’s dropped its ratings the day after the deal closed. S&P then graded both tranches junk.

EA’s answer was to buy US Treasuries and use the cash to cover future payments on its notes. That collateral, it argues, earns the bonds investment grade on their own merits.

The grade came from Egan-Jones Ratings Co, and EA says it substitutes for Moody’s. The creditors, advised by Akin Gump and Houlihan Lokey, say a private grade cannot replace a public one.

Egan-Jones is far smaller than the big three. Bloomberg reported in November that SEC attorneys were examining whether the firm and some senior executives exerted improper commercial influence on its ratings procedures.

Its grades carry regulatory weight in Europe. The European Securities and Markets Authority certified Egan-Jones in December 2014, and the UK’s Financial Conduct Authority added it to its register in 2021.

European banking regulators went further. Under Commission Implementing Regulation 2016/1799, an Egan-Jones BBB maps to credit quality step 3, the steps banks use to set risk weights.

Bermuda moved the other way, dropping the firm from its recognised providers last December. The European Commission, which cleared this buyout in July, weighed Saudi state money rather than the financing.

The creditors issued a notice of default on 8 September. Trustee US Bank then said it would resign over conflicts of interest. Lawyers are arguing whether the clause is a covenant or a payment obligation.

EA, its owners and Akin Gump did not respond to Bloomberg’s requests for comment; four others declined. The same protection sits in European documentation, and European bond markets now carry far more technology debt.