Earlier today Eastman Kodak Company announced that it entered into a commitment letter to secure $793 million in Junior Debtor-in-Possession Financing with Centerbridge Partners, L.P., GSO Capital Partners LP, UBS and JPMorgan Chase & Co. This will provide Kodak with additional financing and establishes the ability to convert a substantial part of the funds into exit financing. This financing is subject to completion of the appropriate documentation and Bankruptcy Court approval at a hearing, which will be scheduled in the near future but is anticipated to take place in December 2012.
This announcement may be a big deal for the future of the company. The financing received will significantly enhance Kodak’s liquidity and ultimately provide the company the exit capital it needs to emerge from bankruptcy. Thus, this financing deal is a key step to enable the company to successfully execute its remaining reorganization objectives and eventually emerge from Chapter 11 in the first half of 2013. Having said that, nothing has been easy for Kodak in bankruptcy, and this financing comes with certain contingencies, one of which may be quite difficult to achieve.
The financing commitment Kodak received is composed of new term loans of $476 million, as well as term loans of $317 million issued in a dollar-for-dollar exchange for amounts outstanding under the company’s pre-petition second lien notes. The financing, however, is predicated on certain conditions and Kodak’s achievement of certain milestones. Perhaps the main pre-condition, and one that may be quite difficult for the company to meet, is that Kodak must successfully complete the sale of it’s digital imaging patent portfolio and the sale much fetch no less than $500 million.
Kodak say that they are confident that the company will be able to obtain a minimum of $500 million for it’s digital imaging patent portfolio. It is impossible to really know whether there is any substantial likelihood that Kodak will be able to obtain $500 million for the patent portfolio given that the transaction has continued to lag behind expectations. At one point it was believed that the Kodak patent portfolio might fetch several billions of dollars, which would have provided the company much needed liquidity to emerge from bankruptcy.
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In June 2012, Kodak petitioned the Bankruptcy Court to sell the patent portfolio. The Bankruptcy Court approved the sale of the patents in July 2012. The auction was planned to be wrapped up at a hearing in August, but the August 20, 2012, hearing was pushed back and no decision on whether the sale would proceed as planned was immediately forthcoming.
Unfortunately for Kodak, the bids it received for the 1,100 patent strong portfolio were reportedly between $150 million to $250 million, which was well below the $2.6 billion that the company had thought the portfolio would fetch when it embarked on the sale of the assets in bankruptcy. Such low bits forced Kodak to indefinitely suspend the auction of the patent portfolio. See Kodak Patent Auction Falters. If that report form the Wall Street Journal on the bids received is true, it would seriously call into question Kodak’s ability to fetch $500 million for the portfolio. Still, if Kodak agreed to that stipulation and is promoting the financing deal via press release one would have to suppose that the company has at least some hope, but they have severely over-estimated the value of this portfolio from the start, which calls into question the company’s objectivity.
The commitment letter received by Kodak also contains provisions allowing for the conversion of up to $567 million of the loans into exit financing provided that Kodak meets certain conditions including the consummation of a Plan of Reorganization by September 30, 2013, the resolution of all of Kodak’s UK pension obligations and the completion of all or a portion of the sales of Kodak’s Document Imaging and Personalized Imaging businesses.
“The additional liquidity from this financing will enable Kodak to accelerate its momentum as we continue to successfully execute on our reorganization objectives and emerge in the first half of 2013. After receiving significant interest from potential lenders, we reached agreement with Centerbridge Partners, GSO Capital Partners, UBS and JPMorgan, all of whom have proven track records in lending to companies that successfully reorganize,” said Antonio M. Perez, Chairman and Chief Executive Officer.
“The significance of this agreement for Kodak is that it establishes a clear path for our emergence as a stronger, more focused company. The significance for our customers, partners and suppliers around the world is that it solidifies our ability to continue to serve them, innovate for them and contribute to their success,” Perez said.
So now we wait to see whether Kodak can sell its 1,100 patents for $500 million. If they can the company seems to have in place at least the minimum capital it would need to legitimately emerge from bankruptcy. Without this financing, however, the continued viability of the company could be in question.