The transfer of ownership of Kodak Alaris from the dividend-starved UK Kodak Pensioners Fund to the UK’s Pension Protection Fund (PPF) is now official and complete, with a revolving line of credit agreed by the PPF now the only thing enabling the business to trade on as a going concern, according to the company’s latest annual report.
According to a document lodged with the UK’s Company House on November 23, the Board of the Pension Protection Fund holds ’75 percent or more’ of the shares of Kodak Alaris, ’75 percent or more’ of the voting rights of Kodak Alaris, and can appoint or remove the majority of the Board of Directors of the company. (The PPF in fact holds 100 percent of the shares in Kodak Alaris.)
Last month, Inside Imaging reported exclusively on Kodak Alaris securing a revolving line of credit from its then owner, the UK Kodak pension fund (KPP2), just prior to the Kodak fund being absorbed into the PPF due to the failure of Kodak Alaris to pay any dividends at all to KPP2. An annual dividend was the original commitment when Kodak Alaris – along with over US$2 billion in debt – was acquired from Eastman Kodak in 2013. Kodak Alaris has been unable to secure credit from more conventional banking sources, with previous lender HSBC ending its line of credit arrangement with Kodak Alaris in June.
‘In the period ahead of this transfer, the Trustee of KPP2 has been working closely with the PPF to agree a US$50m, three-year committed credit facility for the Kodak Alaris business following the expiry of the term of its prior Revolving Credit Facility earlier in the summer,’ Ged Brumby, a director of KPP2’s communications consultants, The Smithfield Group, told Inside Imaging at the time.
According to the last Kodak Alaris financial report, for the year ending March 2020, in a ‘severe but plausible scenario’, and taking into account the impact of Covid 19 in particular, the revolving line of credit is the only thing preventing Kodak Alaris from currently being ‘no longer a going concern’, in the opinion of its auditors, KPMG. Moreover, Kodak Alaris may need to go back to the PPF for more money, possibly before the end of the current financial year!
‘Under the Group’s severe but plausible downside cashflow scenario, absent mitigating actions, it (Kodak Alaris) would exceed the initial US$40 million borrowing capacity at 31 March, 2021 and exceed the full US$50 million facility at September 2021,’ the auditors report states. (US$10 million of the line of credit is not yet approved.)
If that were to happen, Kodak Alaris would have breached the terms of the loan facility around liquidity, leading to it’s withdrawal. This would ‘constitute a material uncertainty that may cast significant doubt on the Groups and the parents company’s ability to continue as a going concern.’
There is a ‘Plan B’ of sorts: The Kodak Alaris directors suggest elsewhere in the report that if the severe-but-plausible scenario (which is based on a 30 percent reduction in revenue in the Alaris document scanner business unit, and a 43 percent reduction in revenue in the Kodak Moments business in the current Covid-ravaged financial year) Kodak Alaris would perhaps be able to ‘obtain agreement from the shareholder to waive the covenants to avoid such a breach and obtain further funding if needed, however there can be no certainty that such an agreement and/or additional funding would be forthcoming.’
The report also signals a change of strategy. The KPP2 trustees instructed the Kodak Alaris board to find buyers for all or parts of Kodak Alaris. That is no longer the case. Kodak Moments – including Kodak film – and Kodak Alaris are no longer up for sale, according to the report.
Click here to access the full Kodak Alaris 2020 Report.
Kodak Alaris 2020 Financials: