Strictly: Drilling II Message Board

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Strategies & Market Trends : Strictly: Drilling II

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To: Frank Pembleton who started this subject	7/11/2002 8:08:59 AM
From: Frank Pembleton	of 36161

Independent Credit Company Sees More Coming Interview by Donna Guzik After all the accounting scandals, before things get back to normal, we're all likely to see some additional pain, says Egan-Jones Ratings Company Managing Director Sean Egan Summary Egan-Jones is an independent credit rating company in Wynnewood, Pennsylvania. Egan-Jones cut their debt ratings of WorldCom in 2000 and then cut it to junk status a year ago. Not many paid much attention then because too many people were making money through the company's offerings. There was a significant amount of overcapacity in the fibre optics area which showed up in WorldCom's declining margins and their ability to cover their interest expense. Egan-Jones is paid by institutional investors so there is no conflict of interest with the companies they review. When rating a company, look both at the financial ratios and the sector the company is in. They try to assess where industries are going. The airline industry is under a significant amount of pressure because of a drop in business travel. Airlines will have to re-organize. With all the accounting/debt scandals, the short term outcome will be reduced demand in corporate debt. The market needs to be cleaned up, it will reestablish itself over time. Investors should try to understand both the sector their investment is in as well as numbers like debt levels and cash flows. Investors should be warned about coding, “hold means sell,” and things of that nature. There will also be bad news about the auto sector; Ford is one auto giant that has been mentioned in a recent Egan-Jones report as a company to be concerned about. Recent accounting scandals are a symptom of a larger picture. If Enron and WorldCom did not have problems with their base business, they would not have had to go to the lengths they did to hide the losses. investorcanada.com

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