EDS, the second-largest IT services provider, last week issued $1.7 billion in long-term debt to raise cash. The company has been struggling to clean up its balance sheet, and its financial problems have affected jobs it bids on. "We're looking at deals that have less up-front investment," a spokesman says.
EDS's problems attracted ratings groups' attention. Moody's Investors Service dropped its rating of EDS's corporate debt to just above junk-bond status. Standard & Poor's also downgraded EDS's credit rating.
The downgrades make it more expensive to raise cash and create other headaches. EDS disclosed last week that it has to now pay its obligations to an unspecified vendor. The payout totals $227 million and is stipulated by a subscription software contract, which says EDS must fulfill financial obligations to the vendor should its credit ratings fall below certain levels.