Credit rating agency Moody’s lowered its rating on EDS’ senior unsecured debt from A3 to Baa2. It also lowered EDS’s subordinate shelf from (P)Baa1 to (P)Baa3, its preferred shelf from (P)Baa2 to (P)Ba1 stable, and EDS’ commercial paper from Prime-2 to Prime-3. The moves follow a downgrade in November. At the time, Moody’s said it was continuing to review EDS for a further possible downgrade.
This week, Moody’s said the move reflected a number of concerns. These included a history of weak free cash flow to debt measures, and the expectation of continued cash usage for EDS’ Navy contract. It also cited credit weakness amongst a number of EDS’ large clients, and the decline in business under EDS’ contract with GM. Inevitably, Moody’s also pointed to the current reduced demand for IT services.
In EDS’ favor, Moody’s said it was adopting a stable outlook for the services company, saying it had refocused its new business pursuit process to contracts requiring less capital outlay. It also said the demand for IT outsourcing and BPO contracts would present new business opportunities requiring less capital. Lastly, it said the Navy contract should turn cash flow positive later this year.
Source: Computerwire
