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Egan Jones: Further US Rating Downgrades Unlikely

Friday, 4 Jan 2013 | 12:58 AM ET

Independent ratings agency Egan-Jones, which slashed the U.S. sovereign credit rating twice last year, said it has no intention of further downgrading the country this year, praising efforts by U.S. lawmakers to avert the "fiscal cliff".

"This latest round (of negotiations) indicates a sign of health. You have a major ideological clash going on in Congress and many people uncomfortable with it, but it is part of democracy. The more positive light is that we actually have a deal and can move forward," Sean Egan, managing director of Egan-Jones told CNBC on Friday.

"We've gotten a lot more comfortable about the U.S. and we probably won't take additional negative actions for the foreseeable future," he added.

Egan-Jones cut the nation's credit rating to AA from AA last April, citing concerns over a lack of progress in cutting federal debt; and again in September, to AA-, triggered by concerns the quantitative easing from the Federal Reserve would hurt the country's credit quality.

Its rating on the U.S. is the lowest among the four major credit agencies. In comparison, both Moody's Investors Service and Fitch have AAA ratings for the country, while Standard & Poor's (S&P) has assigned a AA rating. All three have negative outlooks on the rating.

Egan's Jones view on the U.S. appears more optimistic than Moody's, which has expressed concerns over the "fiscal cliff" deal, which it believes will do little to improve the government's debt ratios over the medium term, adding that the country must do more to rescue its debt rating from a negative outlook.

Steven Hess, lead U.S. sovereign credit analyst at Moody's told Reuters on Wednesday, "Our ratings stance is to wait and see what the outcome of all of this is in the next few months, before we make any decision on the rating outlook or the rating itself." The ratings agency added that a lack of further deficit reduction measures could affect the rating negatively.

(Read more: More Steps Needed to Save US Credit Rating: Moody's)

Still, Sean Egan does not foresee other major ratings firms issuing a downgrade for the U.S. this year.

"The major issue for the other ratings firms is whether they are going to take (their rating) from a negative outlook to negative watch – that's the next step, and the downgrade happens after that. (But) a downgrade by another major firm is unlikely in my opinion," he said.

Even as the U.S. Congress passed legislation this week that averted $600 billion in spending cuts and tax hikes, a potentially bigger political battle looms in the negotiations over raising the debt ceiling after the government hit its $16.4 trillion cap on borrowing in December.

(Read more: Geithner Warns: US Hits Debt Ceiling )

The clash between Republicans and Democrats has already begun, with the former pushing for dramatic spending cuts in return for more borrowing. However, Egan is confident that lawmakers will reach a deal on raising the debt ceiling.

(Read more: Backlash Pushes Republicans to Seek Cuts)

"Even if we don't get a deal on the entitlement (programs), it's highly likely we will get a deal on raising the debt ceiling," he said.