Eastman Kodak finally exits bankruptcy

October 2013 | DEALFRONT | BANKRUPTCY & RESTRUCTURING

Financier Worldwide Magazine

The former pioneer of the photography industry, Eastman Kodak, has finally won court approval for its plan to exit bankruptcy, after Judge Allan Gropper overruled the few remaining objections from the company’s US trustee and shareholders in August. The company finally emerged from bankruptcy on 3 September, bringing an end to a painful and costly insolvency process that lasted 19 months.

The plan, which won overwhelming support from Kodak’s creditors when they voted on the matter, saw around $4.1bn of the company’s debt erased. Furthermore, the plan also confirmed Kodak’s intention to move away from cameras, film sales and commercial photography development – the fields for which the company was most famous. The newly reorganised Kodak will focus its attention solely on printing technology for corporate customers.

During the company’s hearing with Judge Gropper, Kodak’s lawyer Andrew Dietderich remarked that Kodak will be “a very different company than the one in the popular imagination, and a very different one than the one that filed for bankruptcy”.

Kodak filed for Chapter 11 bankruptcy protection in January 2012, listing assets of $5.1bn and liabilities of $6.75bn. During the bankruptcy process, 121 year old Kodak auctioned its digital imaging patent portfolio for $527m and sold off its personalised imagining and document imaging unit to the UK Kodak Pension Plan for around $650m. In exchange, the Pension Plan agreed to drop its $2.8bn claim against the company. The sale of the company’s core businesses was presaged by Kodak’s inability to obtain significant value for its extensive portfolio of patents. The company had hoped to raise around $2bn for its 1100 patents, but, due in part to an ongoing dispute with Apple Inc, the portfolio was sold to a consortium led by Intellectual Ventures and RPX Corporation for just $525m.

The company cited a number of factors for its bankruptcy filing, among them the global recession of 2008, Kodak’s failure to keep pace with the emergence of digital photography which has all but removed the demand for traditional photographic film, and the sheer weight of high pension costs.

In his closing statement Judge Gropper remarked that the collapse of Kodak was “a tragedy of American economic life”. Indeed, the failure of Kodak is a striking one. In 2003 the company posted revenue of around $13.3bn while employing a work force of around 64,000. By 2011, the number of employees had shrunk to around 17,000 and revenue to $6bn. The firm also closed 13 factories and 130 photo laboratories.

Under the terms of the approved bankruptcy plan, secured creditors will be fully paid their claims but shareholders will receive nothing. Unsecured creditors, whose claims reach an estimated $2.2bn, will be paid around four to five cents in the dollar. “This comes on a day when many are losing retirement benefits, and many are finding that their recovery as a creditor is just a minute fraction of what their debt is,” Judge Gropper said. “But I cannot decree a larger payment for creditors or any payment for shareholders if the value is not there.”

In June, Kodak agreed an $895m financing package with JPMorgan Chase & Co, Bank of America, and Barclays Plc. The newly reorganised company will have an estimated enterprise value of around $785m to $1.38bn.

According to the terms of the reorganisation plan, $375m in second lien claims will receive 85 percent of the reorganised company’s equity. Second lien holders will also receive cash for any accrued, unpaid interest up to and including the exit plan’s effective date. The remaining 15 percent of Kodak’s equity will be distributed to an “unsecured creditor pool” on a pro rata basis. Kodak will also be required to set aside $1.8bn for allowed general unsecured claims.

In order to help fund the payments to second lien noteholders the company conducted a $406m rights offering which was supported by a number of firms including GSO Capital Partners, Blue Mountain Capital and United Equities Group.

Kodak has stated that between 2013 and 2017 the company foresees stabilisation and revenue growth with EBITDA of around $327m from its commercial imaging business. The company has also estimated a global cash balance of $815m once it has emerged from bankruptcy protection.

Richard Summerfield