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Duff & Phelps Reaffirms Credit Ratings of Electronic Data Systems and General Motors

Strategic Insights

— 2 min read

Duff & Phelps Credit Rating Co. has reaffirmed its senior debt rating of Electronic Data Systems Corporation (EDS) at A+ (Single-A-Plus) and its commercial paper rating at D-1. The company has also reaffirmed the debt ratings of General Motors Corp. (GM) and its General Motors Acceptance Corp. (GMAC) financial subsidiary with the senior debt of both entities rated A- (Single-A-Minus). GMAC's commercial paper is rated D-1. These actions reflect General Motors' announcement that it intends to pursue a split-off of EDS, its wholly owned subsidiary.

EDS, the world's largest provider of information services, has an enviable record of consistent above-average growth and high profitability. The company's backlog is at a high level, with $34.5 billion at December 31, 1994, not including more than $3 billion per year from the GM business. EDS's business strategy and strong cash flows have driven the company's success, and demand for its core information technology services has strong, long-term growth prospects.

Key Takeaways:

  • Duff & Phelps Credit Rating Co. has reaffirmed the senior debt rating of EDS at A+ (Single-A-Plus) and its commercial paper rating at D-1.
  • The company has also reaffirmed the debt ratings of General Motors Corp. (GM) and its General Motors Acceptance Corp. (GMAC) financial subsidiary with the senior debt of both entities rated A- (Single-A-Minus).
  • GMAC's commercial paper is rated D-1.
  • EDS has an enviable record of consistent above-average growth and high profitability, with a backlog of $34.5 billion at December 31, 1994.
  • The company's business strategy and strong cash flows have driven its success, and demand for its core information technology services has strong, long-term growth prospects.
  • The General Motors relationship has been a factor weighing against a higher rating for EDS, but the split-off could improve the company's credit rating in the long term.
  • EDS's capital requirements are driven primarily by growth opportunities, and the company has approximately $1.8 billion of debt outstanding at June 30, 1995, or 28 percent of invested capital.
  • There is expected to be no rating impact on parent GM and its GMAC subsidiary from the widely anticipated split-off.
  • EDS' operational support to GM and GMAC will continue via long-term agreements, and the company's financial support has previously aided parent GM's ratings.

Statistics:

  • $34.5 billion: EDS's backlog at December 31, 1994.
  • $3 billion per year: EDS's revenue from the GM business.
  • 28 percent: EDS's debt-to-invested capital ratio at June 30, 1995.
  • $1.8 billion: EDS's debt outstanding at June 30, 1995.
  • 33 percent: EDS's revenue from General Motors in the latest quarter.
  • 1995: The year in which General Motors contributed most of its holdings of GME stock to its U.S. Hourly-Rate Pension Plan.

Sources:

  • Duff & Phelps Credit Rating Co.
  • Electronic Data Systems Corporation
  • General Motors Corp.
  • General Motors Acceptance Corp.
  • PRNewswire, August 7, 1995

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