S&P Says EDS Downgrade Might Be Severe
Standard & Poor's
, which earlier this month warned it was reviewing
Electronic Data Systems
(EDS)
for a possible debt downgrade, now says that downgrade might be more severe than originally believed. The ratings service cited EDS' weak operational performance.
EDS is a consulting, outsourcing and Internet commerce company that lost $126 million in the first quarter. S&P has put EDS's A-2 short-term corporate credit and commercial paper ratings on CreditWatch with negative implications, the first step before a full-blown downgrade.
S & P said: the status now means that long-term ratings might be lowered two notches to BBB from A-, rather than one notch to BBB+ as previously expected. EDS has about $5.4 billion in total rated debt.
S & P cited persistent weak operational performance in each of EDS's major lines of business. The ratings service also said EDS's in-house review, which is not expected to be completed until June, could affect 2003's earnings and cash flow outlook. "Although management's targets include improved competitiveness, renewed growth, and a strengthened balance sheet, the costs, execution risks, and change to the business profile arising from the strategic review are unclear at this point."
On May 8, S & P put EDS' long-term rating on review for downgrade.
Shares of Plano, Texas-based EDS were recently at $18.37, unchanged, in late afternoon trading.
The ratings service said it will meet with EDS' management to assess balance sheet expectations and the company's upcoming performance.