Kodak to Shore Up Balance Sheet with Capital Infusion
Eastman Kodak Co. said Wednesday it expects to raise up to $700 million through a series of debt sales in an effort to shore up its balance sheet.
The photography products pioneer, still struggling to find its footing in the digital era, said private equity fund Kohlberg Kravis Roberts & Co. has committed to purchase up to $400 million in senior secured notes due in 2017 in exchange for two seats on Kodak’s board of directors.
Kodak also agreed to issue KKR warrants to purchase up to 53 million Kodak common shares.
“This investment reflects our belief in Kodak’s strategy and our confidence in the Kodak management team to deliver on that strategy,” KKR co-founders Henry R. Kravis and George R. Roberts said in a statement.
Separately, Kodak plans to offer $300 million of convertible senior notes due 2017 in a private placement to institutional buyers. Kodak intends to use proceeds from both debt sales to buy back up to $575 million worth of its 3.375 percent convertible notes due 2033.
Analysts had expressed doubts in recent months about Kodak’s ability “to redeem those convertible bonds when their owners have the right to sell them back to Kodak in October 2010,” said Ulysses Yannas, a broker with Buckman, Buckman & Reid in New York. “What they’re doing right now eliminates that fear.”
“The cost is some extra dilution in common stock,” Yannas said. “It’s not small potatoes. It can be as high as 30 percent because we might be adding close to 80 million shares on top of the 268 million outstanding today.”
Shares of Kodak fell 26 cents, or nearly 4 percent, to $6.42 in after-hours trading. During the regular session, they rose 29 cents, or 4.5 percent, to close at $6.68.
In July, Eastman Kodak posted its third consecutive quarterly loss as the global economic downturn hurt sales of digital cameras, film and other photography products.
On Wednesday, Kodak reiterated earlier financial guidance, saying it expects total sales to slide 12 percent to 18 percent this year because of the recession. Based on 2008 sales of $9.4 billion, Kodak’s estimate implies 2009 sales of $7.7 billion to $8.3 billion.
Analysts, on average, have forecast sales of $7.43 billion for the year.
Kodak expects its 2009 loss from continuing operations will come in at the low end of its forecast range of $200 million to $400 million. In the second half of 2009, it is targeting digital sales growth of 1 percent to 3 percent but has said overall revenue will decline by 4 percent to 6 percent.
Kodak spent $3.4 billion from 2004 through 2007 converting the bulk of its 129-year-old business from high-margin film to electronic technology.
Until the fourth quarter of 2008, its digital businesses were picking up speed, posting six straight quarters of growth. But Kodak reverted to job cuts in January. It is eliminating 3,500 to 4,500 jobs this year, which could reduce its work force to a 1930s-era low of 19,900 from a 1988 peak of 145,300.
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AP Business Writer Dan Lovering in Pittsburgh contributed to this report.
9/17/2009 5:58 AM BEN DOBBIN, AP Business Writer ROCHESTER, N.Y.