Kodak Denies Bankruptcy Rumors
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Kodak Denies Bankruptcy Rumors

October 11, 2011


Film giant Eastman Kodak has hired law firm Jones Day to explore its financial options, a decision that some speculate could find that company moving towards bankruptcy. The move caused the company's shares to plunge 54 percent, largely because Jones Day is known for expertise in handling bankruptcy cases, according to reports from BBC News.

According to sources, Kodak does not have immediate plans to file for bankruptcy, but hired the law firm primarily to assess its various financial options. Despite these comments, shareholders are apparently apprehensive: the company has not been profitable since 2007, and its current market value of $210 million marks a staggering decline from its 1997 peak of $31 billion.

Most of Kodak's financial woes, it seems, have come from its difficulty transitioning to a world in which print photography is going the way of postal mail. Apparently, the company is will be using about $160 million of credit on an existing line worth $400 million just to cover unspecified costs.

Despite its overall economic struggles, Kodak retains some valuable assets, including a number of digital imaging patents that could allegedly be worth between $2 and $3 billion.

Pressure from Owners

A report from CNNMoney.com notes that both Fitch and Moody's downgraded Kodak's stock last week, prompting angry communications from Investment Partners Asset Management, which owns significant amounts of Kodak stock.

According to sources, IPAM has declared Kodak's performance to be unacceptable and suggested the company consider a sale to a firm that will better capitalize on its existing patents and intellectual property.

Stocks Rebound on Denial

In good news for investors, Kodak's stock made up some of the ground it lost amid the questions about bankruptcy, nearly doubling in one Monday trading session. Kodak also reportedly paid $14 million to bondholders.

Still, the company's creditors remain uneasy about Kodak's long-term prospects. One measure of the general lack of faith in the company's future is the cost of insuring its debt: last week, the upfront cost of debt insurance was $5.25 million per $10 million in debt, plus $500,000 per year. This week, the upfront cost has jumped to $7.1 million.

Another measure is creditor's treatment of bonds: apparently, they've been selling like mad, dropping the price from 48 cents on the dollar to just 33 cents in a few short days.

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