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Moody's Lowers Eastman Kodak Ratings

Wednesday, September 28, 2011

Press release from the issuing company

Approximately $1.0 billion of debt securities affected

New York, – Moody's Investors Service lowered all ratings of Eastman Kodak Company, including: the corporate family and probability of default to Caa2 from Caa1, the senior unsecured to Caa3 from Caa2, the senior secured to B3 from B1 and the Speculative Grade Liquidity rating to SGL-3 frm SGL-2. The outlook remains negative.


The rating downgrade reflects our expectations that "ongoing weakness in the company's core business operations in addition to a softening demand environment will pressure operating performance and liquidity over the foreseeable future," said Moody's senior vice president, Richard Lane. Kodak's decision on September 23, 2011 to draw down $160 million from its $400 million secured revolving credit facility signals weaker cash flow prospects, as the draw was just prior to what is usually Kodak's strongest cash flow quarter (the 4th quarter).

Although Kodak had $957 million of cash balances at June 30, 2011 and no material debt maturities until November 2013, "we anticipate that Kodak will consume cash over the next year, thus weakening its liquidity profile," said Lane.


RATINGS RATIONALE

The Caa2 corporate family rating reflects the company's weak financial performance and the challenges Kodak faces in achieving sustained profitability and positive cash flow over the intermediate term. There is intense competitive pressures in its broad digital portfolio and secular decline in its traditional film business. Moody's expects that Kodak will continue to operate at a loss over the intermediate term.


The negative outlook reflects the likely weakening in Kodak's liquidity position over the intermediate term. Kodak continues to rely on intellectual property (IP) licensing income to fund the company's transformation from legacy, analog technology products to a digital portfolio. The timing or amount, if any, of cash received from IP licensing negotiations, litigation (notably with Apple and Research in Motion), or outright sales (the company is currently looking to sell 10% of its digital patent portfolio) is speculative to predict or quantify.


Absent material IP licensing income and the successful execution of non-strategic assets sales "we believe Kodak could see its cash balance decline to below $700 million during 2012", said Lane (management estimated asset sales to approximate $300 million to $400 million for the 2011). We have previously noted that the company's rating could come under pressure if its businesses were to deteriorate such that loses would be expected on a sustained basis or if quarterly cash balances are expected to fall below $800 million over the next year.


Rating lowered include:

Corporate family rating to Caa2 from Caa1;

Probability of default to Caa2 from Caa1;

$500 million Senior Secured Notes due 2018, to B3 from B1; LGD2, 27%;

$2500 million Senior Secured Notes due 2019, to B3 from B1; LGD2, 27%;

$3 million Senior Unsecured Notes due 2018, to Caa3 from Caa2; LGD5, 73%;

$10 million Senior Unsecured Notes due 2021, to Caa3 from Caa2; LGD5, 73%;

$250 million Senior Unsecured Global Notes due 2013, to Caa3 from Caa2; LGD5, 73%;

Speculative Grade Liquidity Rating, to SGL-3 from SGL-2

 

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