Eastman Kodak Co. has hired law firm Jones Day for restructuring advice as it faces growing concerns from investors over its turnaround prospects, but the imaging company said it had no intention to file for bankruptcy protection as of now.
The move signals Kodak is intensifying efforts to ensure it has the financial wherewithal to complete a difficult strategic and financial revamp. Shares in the 131-year-old company have tumbled following Kodak’s disclosure last week that it pulled $160 million from a credit line.
That drawdown heightened concerns about the company’s cash flow and triggered downgrades of its credit rating. On Friday, Kodak’s bonds plunged and its shares fell 54%, or 91 cents, to 78 cents, after The Wall Street Journal reported the company had hired restructuring advisers.
After markets closed, Kodak issued a press release confirming it had hired Jones Day and said it was “committed to meeting all of its obligations and has no intention of filing for bankruptcy.” Kodak said it was exploring all its options.
While Jones Day’s restructuring lawyers have advised major companies on bankruptcies, they also advise clients on a range of other paths for improving their finances. Those possibilities include raising new debt or equity, and asking creditors to forgive debt in exchange for ownership stakes in a company.
Kodak, whose operations burned $847 million in the first half of the year, had $957 million in cash on June 30. It aims to have $1.6 billion to $1.7 billion on hand at the end of the year, but that target presumes successful asset sales, patent income and improvements in the company’s businesses.
Kodak Chief Executive Antonio Perez sought to ease employees’ concerns this week at a town hall meeting broadcast to the company’s nearly 19,000 employees world-wide. The CEO told employees the company had no intention of filing for bankruptcy protection at that time.
Bond investors are less sanguine, trading Kodak debt at levels that indicate a high risk of default. One bond issue maturing in 2013 traded at 26 cents on the dollar Friday evening, down from about 43.5 cents earlier in the day and 76.5 cents last week.
Kodak, based in Rochester, N.Y., has already hired investment bank Lazard Ltd. to advise it on selling a trove of patents, an auction the company deems critical for raising cash to reinvent itself.
Kodak going bankrupt?
Investors have become impatient with the drawn out and expensive turnaround, heightening the pressure on Mr. Perez to show results. The company has posted only one profitable year since he became CEO in 2005. He says it will return to profitability in 2012. The board isn’t considering replacing Mr. Perez at this time, two people familiar with the matter said.
The one-time blue chip suffered with the transition to digital cameras and lost much of its traditional film business to foreign competitors. Intellectual property licensing and lawsuits have largely funded Kodak’s cash needs but stalled earlier this year, prompting Kodak to decide to sell 1,100 of its digital patents.
Moody’s Investors Service and Fitch Ratings each downgraded Kodak’s debt deeper into junk-bond territory this week. Fitch lowered Kodak’s rating to CC from CCC, a rating it said “signifies that default of some kind appears probable.”
Jones Day’s best-known restructuring lawyer, Corinne Ball, represented Chrysler on its historic government-brokered bankruptcy, and is currently advising Twinkie maker Hostess Brands Inc. on restructuring options.