Kodak won bankruptcy-court confirmation of its reorganization plan at a hearing in Manhattan this afternoon, after Judge Allan Gropper overruled a handful of remaining objections from shareholders and the U.S. Trustee.
Kodak creditors voted overwhelmingly in favor of the plan last week. The company, which filed for bankruptcy in January 2012, expects to emerge from Chapter 11 by Sept. 3.
Reorganized Kodak will be “a very different company than the one in the popular imagination, and a very different one than the one that filed for bankruptcy,” Kodak lawyer Andrew Dietderich, a partner at Sullivan & Cromwell, told Judge Gropper this morning. Since its bankruptcy filing, the iconic 121-year-old company auctioned its digital-imaging-patent portfolio for $527 million and sold its personalized-imaging and document-imaging business to the U.K. Kodak Pension Plan for $650 million. A streamlined Kodak will focus, post emergence, on its commercial-imaging business.
Kodak entered Chapter 11 last year with $6.75 billion in liabilities and assets of only $5.1 billion. The company blamed its financial woes on four main problems – the economic recession of 2008, costly retiree benefits, withering returns from its intellectual-property-licensing efforts, and strains on trade credit in the wake of negative publicity.
“Its decline and bankruptcy is a tragedy of American economic life,” Judge Gropper said today as he read aloud his opinion.
The company traced the demise of its traditional film business back at least a decade. As consumers shifted to digital photography, Kodak’s revenue declined from about $13.3 billion in 2003, to about $6 billion in 2011. During that same period, Kodak’s global workforce shrank from about 63,900 employees, to about 17,000.
Under Kodak’s reorganization plan, the company’s second-lien noteholders will see their $375 million in allowed claims paid in full, in cash, funded by the proceeds of a $406 million rights offering. Under the company’s initial plan the second-lien noteholders were to receive 85% of the company’s reorganized equity (with the remaining 15% going to holders of GUCs and retiree claims).
The plan also provides for the payment to second-lien holders of an additional $20 million in cash to resolve disputes related to whether holders are entitled to a make-whole payment.
The remaining 15% of the equity in the reorganized company will be contributed to an “unsecured creditor pool” that would be distributed, on a pro rata basis, to holders of the company’s general unsecured claims and unsecured claims arising under a settlement with retirees that was reached in October 2012.
Kodak will set aside about $1.8 billion for allowed general unsecured claims, Dietderich said this morning, a recovery of about 4-5%. Retiree settlement unsecured claims are $635 million. The company’s current equity will be wiped out.
Kodak conducted a $406 million rights offering for unsecured creditors that will fund cash distributions to second-lien noteholders, backstopped by GSO Capital Partners, Blue Mountain Capital, George Karfunkel, United Equities Group, and Contrarian Capital.
Under the rights offering, holders of general unsecured claims and holders of retiree claims were offered the right to purchase up to 34 million shares of the reorganized company at $11.94 per share. Up to six million of those shares were offered to unsecured creditors as so-called “Section 1145 rights” under a provision of the bankruptcy code that allows new securities to be exchanged for claims. The remaining shares, including any unsubscribed Section 1145 rights shares, were offered to holders of unsecured claims and retiree claims who are “accredited investors” or “qualified institutional buyers” in order to qualify under certain securities registration exemptions.
Kodak’s ultimate value became a major point of contention during the hearing today, as a handful of shareholders made a last-ditch effort to convince Judge Gropper that the company is actually worth far more than it claims. Gropper allowed one shareholder to question Kodak’s valuation experts from Lazard, but gave him a short leash. Last week, Gropper denied a motion filed by shareholders seeking the formation of an official committee to represent their interests. It was the second time Gropper had denied an equity committee, with professionals funded by the estate.
Looking ahead, Kodak has said it anticipates “stabilization and then growth in revenue with a commercial imaging EBITDA improvement of approximately $327 million between 2013 and 2017.”
Kodak has said its commercial-imaging EBITDA improved by approximately $106 million between 2011-2012, explaining, “the significant improvement in EBITDA is a result of both Kodak’s increase in the installed base of new products introduced in the last four years and the effect of its accumulated annuities plus a strong focus on new growth markets and new product introductions that drive higher gross profit, as well as the concerted actions to reduce corporate cost structure through extensive partnerships and resource realignment.”
More specifically, the company projected operational EBITDA of $199 million for 2014, $282 million for 2015, $360 million for 2016, and $494 million for 2017, on gross profits for those years of $539 million, $628 million, $737 million, and $898 million, respectively.
The company has estimated that post-emergence, it will have a global cash balance of $815 million. Kodak CEO Antonio Perez will continue to serve as CEO for up to one year following emergence, or until the company’s new board names a successor. – John Bringardner/Alan Zimmerman
Note: This story was updated on 8/21 to to correct 2nd-lien info.