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January 5, 2012 12:07 am
Eastman Kodak has begun preparations for a possible bankruptcy filing even as it continues to pursue asset sales to raise much-needed cash, according to people familiar with the increasingly difficult financial situation at the company.
The US photographic products group has opened discussions with banks over a new line of debt that the company could tap after a filing under Chapter 11 of the US bankruptcy code, which allows companies to continue to trade while reorganising their finances.
News that Kodak had started the preparations for a possible bankruptcy, first reported by the Wall Street Journal, wiped 28 per cent from its already-battered stock price yesterday. The shares ended the day at 47 cents, more than 90 per cent below their level of a year ago.
Kodak refused to confirm the preparations, issuing a statement that said: “As a matter of longstanding policy, we don’t comment on market rumours or speculation.”
The statement marked a departure from its stance last September, however, when it responded to rumours of a potential insolvency with the statement that it was “committed to meeting all of its obligations and has no intention of filing for bankruptcy”.
Signs of the company’s gathering problems have become more apparent in recent days with the departure of three directors and a warning from the New York Stock Exchange that it risked being delisted if its shares remain below $1. Two representatives of buy-out firm Kohlberg Kravis Roberts, which put $300m into Kodak in 2009, quit the board late last month, along with Laura Tyson, a chairwoman of the US Council of Economic Advisers during the Bill Clinton presidency.
Kodak in 2010 repaid the $300m it had been lent by KKR, though the buy-out firm still holds warrants to buy shares in the company at a price of $5.50 a share.
Kodak has been trying to raise cash through the sale of a portfolio of more than 1,000 patents, hoping to capitalise on the soaring value of intellectual property assets in the technology world as some of the industry’s biggest players draw battle lines around smartphones and other areas of digital personal technology, including photography.
However, despite what it has described as active interest from a number of potential buyers, Kodak has failed to make progress on the sales and has been facing the risk of an approaching cash crunch. Two months ago, it warned that it might not be able to stay in business for the next 12 months unless it was able to sell assets or raise additional capital.
Kodak has held discussions with banks, including Citigroup and JPMorgan Chase, about raising the cash to enable it to continue operating after a Chapter 11 filing, according to the people familiar with the situation.
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