Moody's cut EDS's debt rating to junk bond status yesterday, which means the computer services firm's cost of borrowing has just gotten higher. Also, it may find it that much harder to win mega-outsourcing deals, as customers want to see a completely pukka balance sheet, if they are to commit their IT to another business.

Moody's reduced the rating of EDS's unsecured notes - about $4bn - from Baa3, to to Ba1 i.e. from the lowest investment grade to the top junk grade. It cited the slow pace of turnaround and low levels of free cash flow for its decision.

EDS has fired off a quick counterblast. In a statement yesterday, the firm said: "We have taken a series of aggressive steps to support our investment-grade rating. Given our progress and sound financial footing, we are in strong disagreement with Moody's decision. EDS has significantly reinforced its financial foundation, improved its competitiveness and fully expects to meet its guidance on second quarter 2004 results."

Its full response to Moody's downgrade is here. ®

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