Fitch ups Electronic Data view to positive

Fitch Ratings said it revised Electronic Data Systems Corp.'s outlook to positive from stable and affirmed the company's issuer default, senior unsecured debt and bank credit facility ratings at BBB-.

The agency said the change in outlook reflects the significant growth of new contracts signed by the company, which resulted in a book-to-bill ratio in excess of 1x for three consecutive quarters ended Sept. 30; operating profit margin expansion and increasing free cash flow primarily due to improving execution of previously underperforming mega-deal contracts, principally Navy Marines Corps Intranet and Ministry of Defense; and the company's decision to address its previously inadequate offshore delivery capabilities by acquiring a majority stake in MphasiS Limited BFS.

Fitch said its concerns for the company center on the deflationary pricing pressures in the IT services industry due to the highly competitive environment and increasing number and type of outsourcing engagements performed offshore at a fraction of the onshore cost; significant market share gains made by India-based services vendors at the expense of Electronic Data Systems and other multinational IT services companies; the volatility of the company's free cash flow; the risk of more aggressive shareholder friendly initiatives, primarily share repurchases; and the outcome of the company's discussions with the Securities and Exchange Commission staff regarding a potential settlement of all matters under investigation.

Total debt to operating EBITDA was 1.4x at Sept. 30.

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