Electronic Data Systems ( EDS) could use a little of what it sells. The computer services giant, which promises "business solutions" to everyone from the U.S. government on down, desperately needs a way out of a slowly closing trap. In a nutshell, the company's earnings are sagging. Its expenses are soaring. Its debt load is climbing. And its credit is racing toward junk. Indeed, UBS analyst Adam Frisch -- well-known for his early warnings on the company -- could manage only the slightest reassurance in a dark report issued Wednesday. "We do not see a near-term bankruptcy crisis looming," Frisch offered, forecasting less dreadful possibilities instead. Specifically, Frisch predicted that EDS actually could deplete its cash pile -- and turn to peddling assets and borrowing more -- on its risky turnaround journey. In the meantime, he warned that Tuesday's downgrade by Moody's may not be the last. Moody's lowered EDS' credit to its lowest investment-grade level -- and left the door open for a possible cut to junk -- over concerns about the company's weak cash flow, high severance expenses and future turnaround risks. The downgrade, issued after the market closed Tuesday, took a toll on the company's shares. The stock, which had rallied 50% in recent months, tumbled 4.5% to $21.59 in late afternoon trading.
Moody's latest action came despite a huge infusion of fresh cash for EDS. The one-notch downgrade, issued in anticipation of new capital, was in fact widely expected. But the capital offering itself brought some troubling surprises. Just last week, EDS told analysts that it planned to raise $500 million to $750 million through capital offerings. But the company actually followed through with two private placements totaling $1.1 billion. And it reportedly promised extra interest -- if its credit falls more -- just to sweeten the deal.