Eastman Kodak Company (EK) successfully completed the issue of senior secured notes of $250 million, in a private placement to qualified institutional buyers as per Rule 144A under the Securities Act of 1933.
The interest rate for the senior notes was set at 10.625% per year, with maturity in 2019.
Eastman Kodak plans to use $200 million of the sale proceeds from the issue for general corporate purposes and the remainder for repurchasing 7.25% senior notes due 2013. Consequently, Eastman Kodak raised its cash balance expectation for 2011 to $1.7 billion to $1.8 billion from $1.5 billion to $1.6 billion.
Last week, Eastman Kodak disclosed the pricing of senior secured notes of $250 million, up from the previous plan of a $200 million issue.
According to Associated Press, Moody’s Investors Service, a major credit rating agency, downgraded its long-term rating on Eastman Kodak to “Caa1” from “B3” about a fortnight ago.
We believe that the lowered long-term rating from Moody’s will be a headwind as it may affect the investors’ sentiments. Management stated that the company has adequate financial resources to achieve its target of converting Eastman Kodak into a sustainable, profitable company in 2012.
In spite of the upgraded guidance of cash balance and the company’s target of delivering profit in 2012, we are concerned about the liquidity and profitability. Eastman Kodak had $1.6 billion of cash and equivalents at the end of 2010, down from $2.0 billion at 2009 end.
However, we believe Eastman Kodak’s bottom line will suffer as the company undertakes senior notes bearing higher interest to pay back its low-cost debt. Thus, we currently have an Underperform recommendation on Eastman Kodak supported by a Zacks #5 Rank translating into a short-term rating of Strong Sell.
Eastman Kodak’s prosperity depends on its ability to operate in a highly competitive market, with price competition for digital products, films and services. Eastman Kodak faces intense competition from Canon Inc. (CAJ), Sony Corp. (SNE) and FUJIFILM Holdings Corp.
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