Kodak’s (Next) Day in Court

On Wednesday February 15^th, Eastman Kodak’s lawyers will be back in court in Manhattan. The topic on this trip to court will be Kodak’s request to pay some of its creditors ahead of others.  This is a big deal to everyone involved in the Kodak bankruptcy. Every dollar paid to one creditor may be a dollar that can’t be paid to another. With a towering pile of IOUs and not enough cash to meet them all, everyone hoping to get paid – vendors, bondholders, retirees – has a stake in this hearing.

Kodak’s recent requests to the court suggest that they consider some creditors more equal than others. When Kodak filed for bankruptcy they listed $332 million in trade credits – money owed to vendors. Now Kodak has asked the court to pay $100 million of that in full immediately, claiming that money is owed to unidentified “critical suppliers.” Any  company that sold goods to Kodak and remains unpaid might be a part of this mysterious group; any one that isn’t will be at an immediate disadvantage.

Judge Allan Gropper has seemed willing at times to defer to bondholders – he reduced Kodak’s initial DIP financing request from $700 million to $650 million, and initially denied the company’s request to pay the critical suppliers.  But he’s also granted Kodak’s request to reduce from 2 weeks to 1 week the window for objections to Kodak’s motion that the DIP contract be kept a secret. Where he will come down tomorrow is anyone’s guess, but we expect sparks to fly at tomorrow’s meeting.

The bankruptcy process is an ebb and flow of information – at times we are flooded with news and at other times we are forced to wait for just a trickle.  Tomorrow ought to be closer to a flood.

Questions or comments? Find me on Twitter to continue the conversation.

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).

Harvard vs. Hartwick: The Economics of College Tuition

Several years ago, when my daughter was a high school senior, my wife bought a softcover book with a page on each of hundreds of different schools (I think it was this book).  It wasn’t an important reference for us because she had pretty much already decided to attend Sarah Lawrence College.  I had heard that Sarah Lawrence was an expensive school, according to some article I had read.  So out of a bit more than idle curiosity, I picked up the book and sought the page on Sarah Lawrence. Yes, the book confirmed it to be expensive, and on a whim I paged through looking for Harvard University to compare. On the way to Harvard’s page I came to Hartwick College, of which I know little other than it’s in Oneonta, and an acquaintance attended school there.  I was surprised to find that Hartwick’s total cost for a year was within a few hundred dollars of Sarah Lawrence, and even more surprised to find that Harvard’s total cost fell neatly between the two.  I think at the time that the total annual cost was in the $40,000 range, making a few hundred dollars of difference practically meaningless.

Now, they are all good schools, but you will have a hard time convincing me that you will get 99+% of the benefit of going to Harvard by attending Hartwick. If Hartwick is not a Chevy it might be a Buick, but Harvard is a Mercedes; they’re not the same. Why do they cost the same?

At the root of the price of anything is that eternal equation: supply and demand.  Add to that my theory of “Next-Best.” In this case, Harvard University is perceived worldwide as a desirable school, and it receives so many applications each year that it accepts only a small percentage: 6.2% last year.  That leaves 93.8% of Harvard’s applicants to seek another school – the one they view as “next-best.” As demand cascades from first to second choice (or to third or fourth), there remains enough demand to keep pricing high even among choices not otherwise seen as equal. That’s cold comfort to families struggling with the cost of college and graduates grappling with student loan debt.  Higher education costs may be just a footnote in the presidential election, but whoever wins you can look for this topic to rise in prominence over the next few years.

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).

Kodak Roundup

As the sun rises on Kodak’s first full week in Chapter 11 bankruptcy protection, many questions are being answered, and a few ones are being raised.

1. A Q&A piece issued by Eastman Kodak after their bankruptcy filing has stated clearly that current and former employees who have a balance in Kodak’s 401k (known as SIP) can rest assured that their money will remain accessible to them without interruption.  Some observers had speculated that SIP access would be frozen. Dispelling this notion was one of the principal reasons our firm developed our Community Resource Meetings for Kodak employees and retirees, in an attempt to bring clarity to a situation filled with rumor, half-truth, and urban legend.
2. We have been saying at our meetings that the insurance “wrapper” that has kept the SIP Fixed Income Fund a stable, comparatively high-yielding investment would at some point be discontinued. It didn’t take long for that. The Fixed Income Fund (formerly “Fund D”) will be no more, effective February 1^st 2012.  All assets will be moved into a new Short-Term Bond Fund comprised of high quality bonds. We’ve heard from many participants who are apprehensive of the change, mainly due to concerns about risk. But the new fund should have very low risk, if equally low return.
3. An ominous note was sounded by the Pension Benefit Guarantee Corp (PBGC) about Kodak’s pension, known as KRIP. The latest numbers we have about KRIP stated it was 96% funded, a comfortable level. PBGC’s latest release mentions 86% and calls KRIP “reasonably well-funded” (our italics). The lower funding level may be a result of differing assumptions by Kodak and the PBGC, but we will be watching carefully for what they mean by “reasonably.”
4. CEO Perez mentioned in his recorded statement last week that it would be “business as usual” at Kodak.  I suppose if doubling the collective blood pressure of  your work force and requiring court approval for every dollar you spend is business as usual, he’s right.  At least the company will continue to operate while it seeks to reorganize.
5. Remember Collins Ink? They are the Kodak supplier that caused a splash last fall when they sought to cancel their agreement with Kodak out of concern that a bankruptcy would leave Collins, a small company, stuck with a large unpaid bill. A quick trip to court settled the matter and Collins kept supplying ink.  Unfortunately for Collins, their prediction came true. They are owed $1,889,468  and will likely get only a fraction of that amount when the bankruptcy is settled.
6. This bankruptcy may be shaping up to be a fight between management, who expect to control the process and lead the company back to health; and bondholders, who have lent Kodak nearly $2 billion and would like to get paid. It looks like bondholders may challenge management for the right to run the company.  Attorneys for the bondholders took shots at the Perez team in court, suggesting that management bled the company and that giving them too much cash would be “to everyone’s detriment.”
7. On Friday January 27^th, in conjunction with Senator Joe Robach’s office, we will be hosting another Community Resource Meeting at the Town of Greece Community and Senior Center, 3 Vince Tofany Blvd in Greece. We’ll have room for 300 people, but like our other meetings, this one is beginning to fill up.  For seats, please call our Kodak Hotline at 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).

We’re Going West

With over 25,000 Kodak retirees residing in the town of Greece, Brighton Securities is taking our Kodak Community Forum to the west side next week. At the request of Senator Robach and Assemblyman  Reilich, we’ll be hosting a forum to answer your questions and address your concerns about Kodak’s bankruptcy.

We’ll also give analysis on the company financials which will be released the day before on Thursday, January 26^th.

 As always, our hotline remains open throughout the crisis Please call 585-340-2246 with your questions or to register for the meeting.

  Residents of Greece and surrounding west side communities are welcome to attend next Friday’s meeting at the Greece Community Center. There is room for 300 people, meaning there will be a large group of other retirees and employees present to share your concerns and questions.

 

 WHEN:          Friday, Jan. 27, from 5 pm – 6 pm

 

WHERE:       Town of Greece Community Center

                        3 Vince Tofany Blvd., Greece, NY 14612

 

WHO:             George Conboy, president of Brighton Securities

                       @gtconboy

                     Senator Joseph Robach @SenatorRobach

                     Assemblyman Bill Reilich on Facebook

 

CONTACT:  For more information on the Kodak community meeting in Greece, visit http://www.brightonsecurities.com/ or call the Brighton Securities hotline to register (585) 340-2246.

 

Alexandra Conboy

(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).

On The Brink

For months the story of Eastman Kodak has swirled with rumor and urban legend.  Word from the CEO had been relentlessly upbeat, despite what employees, retirees, investors, and everyone else could see happening: cash dwindling and lawyers circling.  Patents have been up for sale but no deal has been struck.  Stories of “rescue financing” have circulated, but no one has been willing to lend to a company whose situation has become so precarious. And then last night the word came from Bloomberg News that Kodak is in “advanced discussions” for bankruptcy financing.

Sometimes when there’s smoke it’s just smoke.  But with Kodak lately I think fires are raging on the top floors of 343 State Street. Sources inside Kodak are speaking out, and the same goes for people connected to the banks who may lend.  There are credible stories that some of the leaks may have been engineered by Kodak itself, as a way of preparing the public for an imminent bankruptcy. Last week’s resignation of Kodak’s Chief Communications Officer Gerard Meuchner was just one more troubling sign of turmoil at the top.

All that turmoil has meant sleepless nights for thousands of Kodak employees and retirees, who are concerned about what a bankruptcy would mean to them and their families. If there’s any silver lining to this story, it’s that most retiree benefits will remain intact (except healthcare) and that Kodak will not simply shut down and send all of its employees home.

We have been saying for months that Kodak is headed for bankruptcy, and it looks like they are about to file.  As the event looms near, I’ll feel no satisfaction if we’re proven right.

Questions or comments? Find me on Twitter to continue the conversation.

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).

You’re Invited: Open Forum Tonight on Kodak Bankruptcy

WHAT:  Today Brighton Securities representatives will host a meeting on Kodak’s bankruptcy and what it means for Kodak retirees and SIP (Savings and Investment Plan) members

 Free and open to the public, we welcome you to attend and ask questions. If you cannot make the 4:30 pm meeting are encouraged to tweet questions to George Conboy @gtconboy using the #ROCKodak and he will answer them live via a 4:30 pm tweet chat.

 WHEN:   TODAY: Thursday, January 5, 2012 at 4:30pm

 WHERE:  Brighton Securities Office

                 1703 Monroe Avenue, Brighton, NY

 WHO:  - George Conboy, president of Brighton Securities  

           - Brighton Securities’ representatives: financial analysts, certified financial planners, etc.  

 

 

Come out and bring your questions!

Alexandra Conboy

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).      

 

Working Overtime

The office continues to buzz today as we take calls from the media and from concerned Kodak retirees. If you’ve been reading this blog, Kodak’s possible bankruptcy isn’t surprising, but there are still questions to be answered, and we’re ready to take yours.

 Our advisors are meeting yesterday and today to discuss the possible effects of a Kodak bankruptcy on retirees and SIP plan members. Give us a call or tweet your question to @gtconboy on Twitter.

 

Alexandra Conboy

(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).

Don’t Tell Esopus

Little Esopus, NY is a town of 9,500 on the Hudson River about 60 miles south of Albany. A handful of years ago, Esopus planned some public works and issued a municipal bond to pay for it. The town borrowed $170,000 and has been paying 4.5% interest, by all accounts with little difficulty, as the ratings agencies consider them a good credit.

 But a year ago it seemed that storm clouds loomed for Esopus, or at least for its bondholders. On the well-known TV news show “60 Minutes,” market analyst Meredith Whitney predicted a trillion-dollar wave of municipal defaults spurring an economic crisis and social unrest.  According to Meredith, towns like Esopus would be unable to pay their bills.  A year later, it hasn’t quite worked out that way. The US economy ended 2011 in better shape than it started. More people are working; businesses are reporting higher earnings and paying higher dividends. Overall, municipal defaults were down 60% in 2011.  Hardly a “wave.”

 Meanwhile, the little town of Esopus kept making its payments, on time and in full.  Apparently someone forgot to tell them to default. Meredith Whitney had her 15 minutes.  I remember getting a text from one of our advisors who was watching Ms. Whitney make her “60 Minutes” predictions.  My response was “Who’s Meredith Whitney?” That view hasn’t changed.  

 

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).

Hello 2012

Last week we said goodbye to 2011, a year with plenty of sturm und drang but, at the end, little net change.  At the closing bell last Friday it was a mixed bag of results for US markets. Here are the final numbers for the year:

 Dow Jones Industrial Average: +5.53% (DJIA for short)

Standard & Poors 500:  -.002% (let’s call that “unchanged”)

Nasdaq Composite: -1.8%

 The financial media will tell you how the Dow Jones is unrepresentative of our markets, because it is an index made up of just 30 large companies.  That last part is true, of course.  But the kind of companies that make up the index are (mostly) stable, dividend-paying businesses. Names like Exxon, Procter & Gamble, McDonalds, and 3M are what you’ll find there, and those kind of companies have been steadily recovering from the global recession. Another thing common to most of them is that they pay regular cash dividends to their shareholders – and raise those dividends frequently. By contrast the 500 companies that make up the S&P index are a necessarily very mixed bag, and the Nasdaq index is tech-heavy.  Both of those indices have many of what would traditionally be called “growth stocks.”  As in “I don’t mind if they don’t pay me a dividend because I’m looking for growth.”

 If that’s your plan, you’ll need to look hard. The last ten year’s average annual return for the S&P 500 Index is just over 2%. By contrast, the current average annual cash dividend yield for the 30 stocks of the DJIA is now 3%.  I think the chances of making money in 2012 look pretty good if I can expect 3% just for showing up. The directors and officers of most public companies seem to take pretty good care of themselves. I expect them to consider their shareholders by paying cash dividends.  In most cases, if they do not, then I will not consider them.

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).

Can We See It From Here?

I often post about why I think it’s not the end of the world.  And yet again today, I think it’s not.  But with a day like yesterday, people are asking if maybe we can see it from here.  Stocks were down sharply yesterday, and I would be surprised if they weren’t off to a weak start this morning.  Psychology moves herds; herds move markets.

 Strip away the madness of crowds, though, and you can focus on two things: 1. your personal circumstances and 2. What you really own. Your investment decisions should be dictated by your circumstances, not by the actions of a trader in Hong Kong or a 401k participant in Miami, even if their moves can affect the market.  If you aren’t retiring for 10, 15, 20 years, keep your decisions focused on that fact, not on day-to-day volatility. And about that what-you-really-own thing: if you own conservative, well managed investments, you shouldn’t have a problem in the long run.  Do you really think people will stop buying soap and toothpaste?

 Most important: take a deep breath and think before you worry too much. Talk to someone you trust. We have been here before, markets don’t always move in one direction.  If I had to guess, we’re closer to a bottom than a top.

 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).