Friday, September 30, 2011

Eastman Kodak (EK) Bonds-Own 2013 Senior Bond

Kodak (EK) shares plunged almost 54% today on news reports that it has hired a law firm that advises firms in financial distress. EK said today that it had no intention, "as we sit here today", to file for bankruptcy.  The bonds are also trading at levels suggesting many investors believe that a default will occur.  It remains unclear why EK has hired the Jones Day law firm, however. Another report late Friday claimed that Kodak was simply considering its options.  NYT 

I own two EK 2013 senior bonds. I now expect to take a significant percentage loss on them given the size of the secured debt. Possibly, if a bankruptcy filing is made, it would facilitate the sale of EK's patent portfolio and other assets, providing me with something for my small loan north of zero. I would not be surprised with a recovery in a range between 20 to 30 cents on the dollar. Hopefully, I am being too pessimistic. I did not anticipate that EK would survive much past 2013 but I am surprised that it has been brought to the brink so quickly. I would be pleasantly surprised to receive the regularly scheduled interest payment due in November. 

The 2013 bond fell briefly to below 20 before recovering slightly later on Friday.  That bond was trading close to 100 earlier in the year. (see also my recent 9/29/11 Post Moody's Cuts EK Bonds Further into Junk).  As a result of these developments, I am raising my risk rating to 10+ from 9. Personal Risk Ratings For Junk Bonds

Bill Gates' foundation was reported to be the ninth largest holder of EK common stock.

RB Bought 1 Eastman Kodak Bond Maturing 2013 (1/28/11 Post)(RB is my Right Brain)

EK (8/18/11 Post, containing discussion of one firm's value estimate of EK's image patents)

FINRA Information on 2013 Bond: FINRA

Addendum: After the market closed, EK issued a press release stating that it had no intention of filing for bankruptcy. The firm acknowledged in that release that it has hired the Jones Day law firm, saying that firm was just one of the advisors EK has employed in its exploration of "all options."  EK claimed to be committed to meeting "all of its obligations". Kodak Press Release The bond prices on Monday will be the tell on how investors view that commitment.

A very negative Citigroup report on Kodak is summarized in Tiernan Ray's Barrons blog (10/6/11 Post). While the pricing of the 2013 Kodak bond has improved  since cratering into the 20s, I remain pessimistic.

Added 10/12/11: As noted in this Bloomberg article, Kodak's creditors have been busy hiring law firms. The second lien creditors will likely demand that the proceeds from any patent sale be used to pay them back. That article notes that there is about $750M of second lien debt. The last filed  SEC Form 10-Q lists two secured note issues, one maturing in 2018 and the other in 2019. (note 4 at page 10). The first lien debt would be the secured bank credit facility and EK just drew $160M on it. september 23, 2011 8-k The creditors do not appear to have much, if any, confidence in Kodak's management, and I would not criticize them for having that opinion. Kodak has paid the 2013 senior unsecured bond down to $250M.

Added 10/21/11: A recent article in the NYT discusses EK's troubles.

Added 11/3/2011: My discussion of EK's third quarter report can be found at Stocks, Bonds & Politics: Eastman Kodak Bonds: Update on Third Quarter Earnings Report

Eastman Kodak Bankruptcy (January 2012)

Added 6/9/12: Eastman Kodak lost its infringement case against APPLE and RIMM in a decision by an ITC administrative law judge. EK (5/22/12 Post) EK is appealing that decision to the full commission. The value of the senior unsecured bonds were cut in half after that ALJ ruling and are now trading between 10 to 15 cents on the dollar. As noted in that 5/22/12 post, EK reported an awful 2012 first quarter.  

Added 8/20/12: Eastman Kodak lost its infringement case against Apple and RIMM as the ITC affirmed the ALJ's decision. (last paragraph, introduction section in EK;  WSJNYT)

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