EDS struggling to be in black

NEWYORK: Electronic Data Systems Corp., the No. 2 computer services company globally, is looking at

slashing its dividend or selling over $1 billion of equity as it fights to maintain an investment-grade credit rating, it said.

In after-hours trading, the company's bonds took back some of their earlier losses on the news contained in a regulatory filing, while the company's stock fell.

Bond rating agency Moody's Investors Service said in February that it may cut EDS' debt ratings to junk status after the company reported a deep quarterly loss and issued a disappointing forecast for 2004.

EDS has plenty of cash, but maintaining an investment-grade rating is important because the company may have trouble winning future business if customers are concerned about its long-term viability, analysts said.

"They're in a very competitive area of the market and with their ratings in question they're at a disadvantage compared to companies like IBM," said Bob Rock, an analyst at John Hancock Advisors in Boston.

Even the possibility of the company's ratings being cut, has hampered EDS' business, Rock said.

But the company is working hard to cut costs and shore up its financial condition. EDS' current 15 cent-a-share quarterly dividend pay out costs it $290 million a year, a sizable amount compared to its anticipated cash flow from operations less capital expenditure of around $400 million in 2004.

According to its most recent quarterly filing with regulators, EDS has about $2.1 billion of cash, compared with total debt of around $5.8 billion. In May, the company said it would decrease long term debt by $1.4 billion.

In addition to reducing its dividend, the company is considering issuing equity or equity linked securities like convertibles or both, it said in a 10-Q filing with the Securities and Exchange Commission.

EDS has tried hard not to cut its dividend, which could be seen as weakness in the short term. EDS Chief Executive Michael Jordan told the analysts in February that, he saw no change in the company's dividend policy.

EDS's stock added to earlier losses on the news. Shares fell to about $17.30 in after hours trading on INET, after closing on the New York Stock Exchange at $17.51.

EDS bonds, meanwhile, took back some of their earlier losses relative to Treasuries.

Spreads over Treasuries on the company's notes, with a 6 percent coupon maturing in 2013. A measure of the extra yield investors demand for taking on a company's credit risk, were as wide as 2.78 percentage, but later in the session were at 2.64 percentage points, according to MarketAxess.

© Reuters