Eastman Kodak Company (EK) announced that it intends to issue senior secured notes of $200 million in a private placement to qualified institutional buyers as per Rule 144A under the Securities Act of 1933.

The final terms of the notes, such as interest rate, will depend on the negotiations between Kodak and the initial purchasers of the notes.

Eastman Kodak plans to utilize the proceeds of the issue for general corporate purposes.

According to Associated Press, Moody’s Investors Service downgraded its long-term rating on Eastman Kodak to “Caa1” from “B3” last week. This implied that the company’s long-term debt is of poor standing and is prone to high credit risk compared to the previous rating which implied that the debt carried high credit risk. 

Moody’s expects that the company’s liquidity will suffer due to higher cash burn rate. Moody’s lowered rating was driven by weakness in Eastman Kodak’s core business operations, which it believes will hinder positive results.

In the fourth quarter of fiscal 2010, Kodak reported a loss per share of $0.37 from an EPS of $1.08 in the year-ago quarter.  

At the end of fiscal 2010, Eastman Kodak’s cash and equivalents decreased to $1.6 billion from $2.0 billion at the end of 2009. Net cash used by operating activities was $219 million, soaring $83 million from fiscal 2009.

Although in fiscal 2010, the company’s bottom-line improved 45 cents, there was still a loss of 8 cents.  Increased interest expense of this issue might have an adverse impact on the bottom line. Further, we believe that the lowered long-term rating from Moody’s will be negative as it may affect the investors’ sentiments. 

Eastman Kodak’s prosperity depends on its ability to operate in a highly competitive market, with price competition for digital products, film and services. Eastman Kodak faces intense competition from Canon Inc. (CAJ), Sony Corp. (SNE) and FUJIFILM Holdings Corp.

 
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