Eastman Kodak Co.
(EK), the unprofitable 131-year-old camera maker, is weighing
options including a bankruptcy filing because of concerns raised by
possible buyers of its patent portfolio, said three people with
direct knowledge of the process.
Some potential bidders for the patents are wary of proceeding
because a purchase may amount to a so-called fraudulent transfer if
Kodak is insolvent, said the people, who asked not to be named
because the talks are private. Kodak confirmed that it hired
Jones Day to advise it on considering options and
said it doesn’t plan to seek bankruptcy protection.
“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,” Gerard Meuchner, a spokesman for Kodak, said yesterday.
“We’re not concerned about fraudulent conveyance in regards to the
sale of our IP portfolio.”
The company will make a $14 million coupon payment due today, he
said. Meuchner declined to comment on whether the company had
discussed a potential filing with law firms, saying that Kodak is
“focused on the fourth quarter and on delivering on our strategy to
become a profitable, sustainable digital company.”
A number of suitors, such as Google Inc. (GOOG), have
signed confidentiality agreements to examine the assets, said the
people. If a sale was judged fraudulent, creditors may sue for more
money, said one of the people. A bankruptcy filing may help clear
the way for a patent sale, said the people. The sale could fetch
about $3 billion, MDB Capital Group estimates.
Kodak also has discussed its options with law firm Kirkland
& Ellis LLP, the people said. Companies may hire bankruptcy or
restructuring counsel to advise on options besides bankruptcy,
including debt restructuring, asset sales or operational
improvements. Lazard Ltd. (LAZ) is
advising Kodak on options for the patent portfolio.
Kodak plunged 91 cents, or 54 percent, to 78 cents a share
yesterday in New York Stock Exchange composite trading, the
biggest drop since at least 1974. Trading was halted four times by
circuit breakers introduced following the May 6, 2010, crash to
prevent losses in one security from spreading throughout the stock
market.
The cost to protect Kodak’s debt from default jumped.
Credit-default swaps linked to the company rose 4 percentage points
to 66.5 percent upfront, according to data provider CMA. That means
investors would pay $6.65 million initially and $500,000 annually
to protect $10 million of Kodak’s debt for five years.
Kodak’s debt is rated CCC by Standard & Poor’s and Caa2 by
Moody’s Investors Service. The ratings are the eighth levels below
investment grade at each firm.
A representative from Kirkland declined to comment. Katelin
Todhunter-Gerberg, a spokeswoman for Mountain View, California- based Google, didn’t
immediately respond to voicemail and e-mail messages seeking
comment, nor did an official for Jones Day.
Moody’s cut Kodak’s bond ratings Sept. 27 and indicated further
reductions may follow, citing “ongoing weakness” in the company’s
operations. Kodak, which tapped a credit
line last month, has seen its market value sink by more than
$30 billion from its 1997 peak.
Chief Executive Officer Antonio Perez, who took the helm in
2005, has sharpened Kodak’s focus on the printing business to help
revive revenue. Perez announced plans in July to explore options
for the portfolio of more than 1,100 patents, including some for
processing, editing and storing images.
“What’s facing Kodak is whether it can give assurances to
third-party buyers that they’re not going to get sued,” Mark
Kaufman, an analyst at Rafferty Capital Markets in New York,
said yesterday by telephone. “Here’s the irony: If they sell the
assets for a good price, the issues of insolvency are over. It’s a
conundrum.”
A bankruptcy filing “would be a mechanism to get this asset sale
done,” said Kaufman, the only analyst among seven tracked by
Bloomberg who rates Kodak as “buy.” He values the patents at $2.4
billion.
Kodak’s sales have fallen by half since 2005 to $7.2 billion
last year, with further declines predicted this year and next. The
company’s losses since 2008 exceed $1.76 billion.
Kodak, whose origins date back to 1880, was founded by George
Eastman, who introduced the Kodak camera eight years later,
according to the company’s website. Kodak has shifted away from
traditional film as consumers gravitated toward digital
cameras.
Kodak’s top debtholders include Fidelity Management &
Research, Fidelity International, Banc One Investment Advisors,
Davidson Kempner Capital Management LLC and OppenheimerFunds Inc.,
according to Bloomberg data.
Fidelity and its affiliates ranked as the largest Eastman Kodak
shareholders as of June 30 with a combined 24.4 million shares,
most of which was held in the form of bonds that are convertible
into common stock, according to regulatory filings.
The largest owner of actual Kodak stock was Legg Mason Inc. (LM)’s LMM
LLC, which held 18.2 million shares outright, the equivalent of a
6.8 percent stake, when the second quarter ended, the filings
show.
from bloomberg