Kodak Reorganization Approval Affirms Move From Cameras
By Erik Larson - Aug 21, 2013 12:01 AM ET
Eastman Kodak Co. (EKDKQ), which dominated the photography industry before being hobbled by digital competition, won court approval of a plan to exit bankruptcy as a commercial printing company that sells nothing to consumers.
The plan, which cuts about $4.1 billion of debt, was approved yesterday by U.S. Bankruptcy Judge Allan Gropper in Manhattan. It affirms Kodak’s move away from cameras, film sales and consumer photo developing, which made it a household name, to focus on printing technology for corporate customers.
Kodak “is in many ways a new operation” after shedding its best-known businesses, Gropper said. “This is on a day when many are losing retirement benefits, when many are finding that their recovery as a creditor is just a minute fraction” of what they expected.
Secured claims will be paid in full under the plan, while shareholders will receive nothing. Unsecured creditors with estimated claims of as much as $2.2 billion will be paid 4 cents to 5 cents on the dollar. In court papers, Kodak called the plan a “comprehensive compromise” between the company and its creditors.
Gropper rejected claims from some shareholder groups that Kodak and its bankruptcy experts were hiding value. In court yesterday, he said that even if Kodak were worth far more than it claimed, that value would go to unsecured creditors and shareholders still wouldn’t get anything.
Kodak, based in Rochester, New York, filed a Chapter 11 petition in January 2012 after spending $3.4 billion on earlier attempts to turn the company around. By then, Kodak had already shed 47,000 employees since 2003, closed 13 factories that made film, paper and chemicals, and shuttered 130 photo laboratories.
The company entered court protection with about 17,000 employees and will exit the case with about 8,500, after previously agreed unit sales and spinoffs.
The photographic and consumer print products associated with Kodak’s brand for generations were sold during the bankruptcy or spun off to settle pension claims. Its commercial printing businesses will continue making presses and technology to print documents, publications and product packaging.
The company will soon emerge “as a technology leader serving large and growing commercial imaging markets — such as commercial printing, packaging, functional printing and professional services — with a leaner structure and a stronger balance sheet,” Antonio M. Perez, Kodak’s chairman and chief executive officer, said in a statement.
While the new Kodak won’t be the company of “popular imagination,” it will again “be a leader in its chosen field,” its lawyer, Andrew Dietderich, said in court yesterday.
The plan hinges on Kodak selling $406 million of new stock. The rights offering for 85 percent of the company’s equity will be backstopped by a creditor group that includes GSO Capital Partners and BlueMountain Capital Management.
Creditors holding more than half of the company’s unsecured bonds agreed to invest new money in Kodak to boost their equity ownership through the rights offering, David Kurtz, the head of restructuring for Lazard Freres & Co., said in an interview.
“When you go back to the beginning of the case, there was a lot of uncertainty and skepticism and negative speculation about whether Kodak would ever see a going-concern Chapter 11 confirmation,” Kurtz said. “And here we are with the overwhelming support of our creditors.”
Under the reorganization plan, Kodak will also focus on a new technology — touch-screen sensor components for smartphones and computer tablets — and continue producing film for the movie industry.
Kodak plans to rely on $895 million in loans to finance the bankruptcy exit, according to court papers. The reorganized company will have an estimated enterprise value in the range of $785 million to $1.38 billion, Kurtz said in an Aug. 2 filing.
Kodak raised cash for the reorganization by selling businesses including camera film, photo kiosks, an online picture-sharing service and commercial document scanners, and auctioning its digital-imaging patents. The patents related to the capture, manipulation and sharing of digital images, while the kiosks include those used by consumers and by theme parks to get pictures of passengers on rides.
Kodak in April spun off its personalized- and document-imaging businesses for $650 million to its U.K. pension plan in a deal that settled $2.8 billion in claims against the company. It also reached a deal to resolve environmental liabilities in New York by establishing a trust and contributing $49 million.
The company, which sold the first consumer camera 125 years ago, was founded by George Eastman, who developed a method for dry-plate photography before introducing the Kodak camera in 1888, according to the company’s website.
It went on to invent film, enabling Thomas Edison to develop the motion picture camera, as well as Brownie cameras selling for $1 and Kodachrome film. It also invented the digital camera — a technology it failed commercialize.
Kodak’s revenue at the time of the bankruptcy filing had fallen by half since 2005 to $7.2 billion in 2011. The company’s losses since 2008 had exceeded $1.76 billion.
“Kodak is one of the best-known names of American business,” Gropper said yesterday. “Its decline in bankruptcy is a tragedy of American economic life. I’ve reviewed dozens of letters from Kodak shareholders asking how the company in which they invested fell so far.”
The bankruptcy case is In re Eastman Kodak Co., 12-bk-10202, U.S. Bankruptcy Court, Southern District of New York (Manhattan).
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