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Troubled Eastman Kodak shares slump

October 4, 2011: Eastman Kodak shares slumped to well under one dollar last Friday and then came back strong early this week after the 131-year-old company reassured investors it had no intention of filing for bankruptcy.

The initial concern about Eastman Kodak’s future was sparked when it was disclosed management had drawn down US$160 million from a Bank of America line of credit.

It has also hired law firm Jones Day, which specialises in large corporate bankruptcies and restructurings.

Moody’s Investors Service and Fitch Ratings have downgraded Kodak’s debt, with Moody’s dropping its rating from ‘CC’ to ‘CCC’, which ‘signifies that default of some kind appears probable.’

Compounding Kodak’s woes, there is concern that its plan to sell its valuable stock of patented intellectual property could be jeopardized as there is concern that a sale may amount to a ‘fraudulent transfer’ if Kodak becomes insolvent.

CEO Antonio Perez announced plans in July to explore options for the portfolio of more than 1100 patents, including some for processing, editing and storing images. The value of the patents could amount to US$2 billion, according to a Bloomberg report

Stacked up against this is a debt of US$1.5 billion and unsecured pension fund obligations of US$1.2 billion, with the company ‘burning through’ US$600 to $700 million in cash per year. Sales have fallen by half since 2005 to US$7.2 billion last year, with further declines predicted this year and next. The company’s losses since 2008 exceed US$1.76 billion.

‘It’s hard to see how even if they do restructure their debt, that it can function as a going concern given the amount of free cash flow they are burning through this year,’ John Witt, an analyst at Fitch Ratings, told Bloomberg.

Nonetheless, a filing for bankruptcy doesn’t appear imminent, based on Kodak statements and share market analysts.

‘As we sit here today, the company has no intention of filing, and there is no change in our strategy to monetize our intellectual property,’ said Gerard Meuchner, a spokesman for Kodak last Friday, as reported in the Wall Street Journal. ‘We’re not concerned about fraudulent conveyance in regards to the sale of our IP portfolio.’

On Monday, another Kodak spokesman Chris Veronda, is reported as stating, ‘We certainly reiterate that we have no plans to file for bankruptcy and are committed to meeting our obligations…’

‘The management is unlikely to file for bankruptcy until they run out of cash,’ said a UK-based analyst and managing director of share broker CRT Capital Group, Amer Tiwana, who specialises in researching distressed companies.

He also said that a bankruptcy and restructuring advisory firm, Houlihan Lokey, is pitching creditors (among whom is the Bill & Melinda Gates Foundation) to represent any sort of ad hoc committee they may form in future discussions with Eastman Kodak.

Kodak shares fell 54 percent to 78 cents on Friday September 30, Yesterday, Oct 3, they were at US$1.34.

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