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EDS Issues $1.7 Billion In New Debt As Credit Rating Is Downgraded

Downgrade also forces company to pay off a software contract.

EDS, the second-largest provider of IT services, on Wednesday issued $1.7 billion in long-term debt in an effort to raise cash. The IT services company has been struggling to clean up its balance sheet, and its financial problems have affected the jobs it bids on. "We're looking at deals that have less up-front investment," a spokesman says.

EDS's financial problems also attracted attention from ratings organizations. Moody's Investors Service dropped its rating of EDS's corporate debt to just above junk-bond status after the close of financial markets Tuesday. Standard & Poor's downgraded the company's credit rating on Friday.

In addition to making it more expensive for the company to raise cash, the downgrades are creating other headaches for EDS. The company disclosed Friday that it must immediately pay out its obligations for a software contract as a result of the downgrades. The payments, to an unspecified vendor, total $227 million. The payout is stipulated by EDS's subscription software contract, which says the company must fulfill in whole any financial obligations to the vendor should its credit rating be downgraded below Moody's rank of Baa2 or S&P's rank of BBB. Tuesday, Moody's downgraded EDS to Baa3. Its S&P ranking now stands at BBB.

In trading Wednesday, shares of EDS fell by $1.59, or 7.03%, to $21.02.

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