Bankrupt

 Kodak, bankrupt. How can it be? Who would have thought, ten years ago – even a year ago –  that this would come to pass. And yet here we are.  Our firm has been busy holding Community Resource Meetings for Kodak employees and retirees, helping to provide clear information at a time when rumor, half-truth, and urban legend have all circulated throughout the community.  We have another session tomorrow night here at our office and one a week from tomorrow in Greece, home of the largest concentration of current and former Kodakers.  

Here’s a quick rundown of what to expect – and what not to:

1. Bankruptcy means reorganization for Kodak – not liquidation. The company will try to sell its patents and some business units with a plan to slim down and emerge a smaller and more profitable company. Estimated time in bankruptcy: about 18 months.
2. For retirees who are receiving monthly pensions, no worries. Your pensions are safe and will continue to be paid. Some special executive plans will probably suffer, and current employees may find available pension options curtailed.  But KRIP pensions are well-funded and safe.
3. SIP, Kodak’s well-known 401k plan, is also safe. Kodak cannot touch those assets and neither can its creditors. There should be no meaningful short-term change in investment options, including the Fixed Income Fund (still known as “Fund D” to many).
4. Health insurance benefits are safe – for now. Since Kodak will operate under bankruptcy protection, the company cannot terminate or alter retiree health benefits without court approval. It’s true that Kodak could move quickly and ask the court to approve a prompt termination, but we see that as highly unlikely. Current view: retiree health insurance will not end prior to the end of bankruptcy.
5. Employees will keep their jobs and benefits – for now. Kodak will try to sell businesses (consumer is high on the list) but even if sold a lot of jobs will remain.
6. Many of the upbeat projections rely on a sale of patents for the higher end of the range, $2 – $3 billion. A strong patent sale will lubricate the entire process.
7. Still waiting to hear a realistic, believable scenario from the office of the CEO.  Because this time last year, here was the story

Stay with us on Facebook and Twitter for the latest.  For Kodak employees and retirees with questions, our hotline is 585-340-2246.

 

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).

More Kodak Tea Leaves

Latest news out of the Big Yellow Box is that two members of Kodak’s Board of Directors have resigned.  According to a company spokesman, the two gave no reason for their resignations.  But no reason given doesn’t mean that no reason exists.  That leaves us with just the tea leaves to read, to try and tell what’s happening on the upper floors over at 343 State Street.

 The two former directors were appointed to the Board in late 2009 as part of a financing transaction. Kodak needed money to pay some soon-to-mature debts, and the echo of the financial crisis coupled with Kodak’s own weakened position meant there were few lenders willing to make the loan.  Enter Kohlberg Kravis Roberts, better known as KKR, with a long history of leveraged buyouts and big business deals, most notably the takeover battle for RJR Nabisco in 1988, which was chronicled in “Barbarians at the Gate.” Kodak was able to borrow what it needed (at 10% interest) and gave KKR two more things: an option to buy up to 17% of Kodak’s common stock at around $5/share, and two seats on the Board of Directors.  Kodak paid back the loan promptly, but the two directors remained, while the option to buy became worth less and less and, ultimately, worthless.

 We have all watched over the last few months as Kodak has struggled: credit rating downgrade, desperate drawdown of credit line, sale of business units to raise cash, attempts to sell patents, a revolving door of advisors. The focus of investors is no longer on Kodak’s business but on the contents of its purse: can Kodak live off cash on hand until they can sell their patents? It is increasingly likely that Kodak will end up in some kind of restructuring, probably a Chapter 11 bankruptcy filing. The departure of the two KKR directors may mean that they are leaving in advance of making an offer to buy or restructure Kodak.  Though, sadly, it’s more likely they don’t see enough profit for their firm in doing a transaction and are walking away.

 Whatever happens, this time next year it will be on our “Top Ten” list of stories for 2012.

 

GTC

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp.  The author’s opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).