Eastman Kodak Company (EK) announced that it intends to issue senior secured notes of $250 million, up from the previous plan of a $200 million issue, in a private placement to qualified institutional buyers as per Rule 144A under the Securities Act of 1933.

The company also provided the final terms of the issue – interest rate for the senior notes was set at 10.625% per year. The senior notes will mature in 2019.

Eastman Kodak also expects to settle the sale of the senior notes to the initial purchasers on March 15, 2011.

The company 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.

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” last week. This denotes that the company’s long-term debt is of poor standing and is prone to high credit risk compared with the previous rating which implied that the debt carried high credit risk.

Moody’s believes that weakness in Eastman Kodak’s core business operations 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.

The company’s liquidity position remains a matter of concern, as Eastman Kodak’s cash and equivalents position at end of fiscal 2010 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. Eastman Kodak will pay back its low-cost debt through new offerings, bearing higher interest expense, which will harm 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, films and services. Eastman Kodak faces intense competition from Canon Inc. (CAJ), Sony Corp. (SNE) and FUJIFILM Holdings Corp.

 
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