Zacks_Analysts' Blog : EK Draws $160M, Protects Debt - Analyst Blog

Eastman Kodak Co. (EK), a 131 year-old camera manufacturer, drew down $160 million from its revolving bank line as a measure to protect the company’s debt from default. The measure pushed up the company’s cost to the highest level.

In April, the company entered into a restated credit agreement for a five-year asset-based revolving line for an amount up to $400 million. The proceeds were planned to be used for general corporate purposes, including the purchase of its 7.25% bonds due in 2013. The credit facility, which is a part of Kodak’s cash- management tool kit, is expected to bridge time differences between cash outflows and inflows.

According to the data provider CMA, drawing of $160 million as the company’s debt protection measure, raised the company’s credit-default swaps, up 2.2 percentage points to 41% upfront. This implies that the investors would pay $4.1 million initially and $500,000 annually to protect $10 million of Kodak’s debt. Kodak has planned to pay the interest beginning at 1.5 percentage points more than the base rate. It has decided to repay the money at any time without penalty.

Less than a month ago, Kodak had put up its patents worth $3 billion for sell, trying to generate interest among potential bidders while converting the company’s intellectual property into cash. The company has also been trying to raise cash for funding inkjet printing and other digital businesses, projected to generate operating profits by 2013.

Based in Rochester, New York, Eastman Kodakoperates in global photographic and graphic communications markets, and directly competes with its peers, such as Canon Inc. (CAJ), Sony Corporation (SNE) and FUJIFILM Holdings Corporation (FUJIY.PK).

We currently maintain a long-term Neutral recommendation on the stock. Kodak has a Zacks #3 Rank, which translates into a short-term Hold rating (1-3 months).