Eastman Kodak’s Exit from Chapter 11 Bankruptcy | September 3, 2013 Effective Date
Eastman Kodak Co. (EKDKQ), based in Rochester, N.Y., filed for Chapter 11 protection in January 2012. Since then, it has been working to sell assets and shed unprofitable business lines to reorganize around its commercial-imaging business, which includes digital printers and motion picture film.
The Debtors in the chapter 11 cases, along with the last four digits of each Debtor’s federal tax identification number, are: Eastman Kodak Company (7150); Creo Manufacturing America LLC (4412); Eastman Kodak International Capital Company, Inc. (2341); Far East Development Ltd. (2300); FPC Inc. (9183); Kodak (Near East), Inc. (7936); Kodak Americas, Ltd. (6256); Kodak Aviation Leasing LLC (5224); Kodak Imaging Network, Inc. (4107); Kodak Philippines, Ltd. (7862); Kodak Portuguesa Limited (9171); Kodak Realty, Inc. (2045); Laser-Pacific Media Corporation (4617); NPEC Inc. (5677); Pakon, Inc. (3462); and Qualex Inc. (6019). The location of the Debtors’ corporate headquarters is: 343 State Street, Rochester, NY 14650
Kodak Starts Plan Confirmation (Approval) Process
On April 30, 2013, the Debtors filed the initial version of their proposed Plan and the Disclosure Statement. Following extensive negotiations with their constituents, on June 18, 2013, the Debtors filed a first amended Plan, and the related first amended Disclosure Statement. On June 24, 2013, the Debtors filed a further revised version of the first amended Plan and related first amended Disclosure Statement. The Court conducted a hearing to approve the Disclosure Statement which commenced on June 25, 2013.
On June 26, 2013, the Court entered the Order approving the Disclosure Statement and establishing voting deadlines on the Plan, among other related procedural orders.
As described in the Debtors’ First Amended Disclosure Statement, the Debtors’ chapter 11 proceedings were precipitated by a combination of deteriorating market conditions, substantial post-employment costs and a liquidity shortfall caused by difficulties in collecting licensing fees.
As of the Petition Date, the Debtors’ aggregate debt and legacy liabilities were approximately $6.7 billion. The Debtors’ losses for 2011 were approximately $758 million and losses continued to build after the filing of the Debtors’ chapter 11 proceedings.
As explained by the Debtors’ counsel, Sullivan & Cromwell LLP (“S&C”), the Debtors entered chapter 11 protection with the expectation of selling their digital imaging patent portfolio for a substantial sum. That expectation did not materialize and, as a consequence, the Debtors were required to revise their financing plans and business objectives in order to achieve a confirmable plan of reorganization.
In the nearly 20 months that have passed from the Petition Date through the Confirmation Date, the Debtors, the Creditors’ Committee, the Retirees’ Committee and their respective Retained Professionals expended a tremendous amount of time and effort to successfully reorganize and avoid a liquidation. As a result of this work, the Debtors emerged from chapter 11 protection as a commercial printing and packing enterprise with a mid-range enterprise value of $1.025 billion, a mid-range distributable value of $1.72 billion and a cash position in excess of $800 million.
The Debtors sold substantial assets and unwound unprofitable businesses, shed billions of dollars of legacy liabilities through settlements with creditors and bolstered liquidity by successfully refinancing their debt and raising new equity capital. The Debtors’ Plan was supported by the Creditors’ Committee and the Retirees’ Committee and overwhelmingly accepted by each class of the Debtors’ creditors entitled to vote.
Accordingly, according to the fee examiner, “the results achieved by the Debtors, the Creditors’ Committee, the Retirees’ Committee and their respective Retained Professionals could not have been accomplished outside of the chapter 11 process.”
Debtor’s Characterization of the Plan of Reorganization
According to the Debtor, “On the Petition Date, the Debtors announced four key goals for the Chapter 11 Cases: (i) bolster liquidity, (ii) monetize non-strategic intellectual property, (iii) fairly resolve legacy liabilities, and (iv) focus on their most valuable business lines. The Plan is the culmination of the Debtors’ restructuring efforts. It:
- fairly resolves unsustainable legacy liabilities by implementing the KPP Global Settlement and the Retiree Settlement, facilitating the separate settlement environmental liabilities at Eastman Business Park, and addressing other legacy liabilities as unsecured claims subject to treatment in accordance with the Bankruptcy Code;
- raises $406 million of new equity capital through the offering of 34 million shares of New Common Stock, fully subscribed by Kodak’s unsecured creditors;
- provides approximately $695 million in funded term debt and an asset-based revolving credit facility with $200 million of commitments, each on favorable market terms; and
- completes the disposition of non-strategic, legacy businesses and enables the Debtors to emerge from chapter 11 positioned for growth as a technology leader in the Commercial Imaging industry.
According to the Debtor, “The KPP Global Settlement is a cornerstone of the Debtors’ Plan. The KPP Global Settlement resolved three types of claims against the Debtors, namely (a) the KPP Claim, which, at $2.8 billion, was the largest Unsecured Claim in these Chapter 11 Cases, (b) structurally senior claims by KPP against Kodak Limited, Kodak’s British subsidiary, and (c) “moral hazard” liabilities against all of Kodak’s affiliates based on a theoretical source of recovery by U.K. pension regulators for any U.K. pension deficiencies. The KPP Global Settlement, implemented to resolve these claims, involved five elements, namely: (a) payments by Kodak Limited to the U.K. pension plan in order to reduce Kodak Limited’s liability, (b) a regulatory apportionment arrangement in the U.K. whereby Kodak Limited’s pension liabilities were extinguished pursuant to U.K. law, (c) the sale of the Personalized Imaging and Document Imaging business to KPP for a price of $650 million, (d) U.K. regulatory clearance from “moral hazard” liability for certain Kodak affiliates, and (e) releases of all commercial parties involved in the settlement.
Confirmation of Plan
On August 23, 2013, Bankruptcy Judge Allan L. Gropper’s confirmed the restructuring plan, which came after Kodak reached several major settlements with creditors over the summer, puts the iconic photography company on the path to conclude its nearly two-year stay in Chapter 11 as a leaner company focused on commercial imaging.
Creditors agreed to buy 85% of the reorganized company’s shares through a rights offering that brought in more than $400 million.
Effective Date of Plan
The Plan became effective on September 3, 2013.
Effect of Plan
The company emerged from bankruptcy in September smaller than when it went in, with a focus on digital imaging and commercial printing. On Monday, in its first post-bankruptcy earnings, it reported a quarterly loss of $155 million, saying it had $839 million in cash and $679 million in debt.
The plan wipes out Kodak’s current shareholders, one of which argued for more than an hour during Tuesday’s hearing that the company is valuable enough to provide a recovery for equity holders, an argument Judge Gropper rejected.
Other Plan Financing
In addition to the proceeds of the rights offering, Kodak will fund the plan with an $895 million loan from lenders led by J.P. Morgan Chase & Co. ( JPM ), Bank of America Corp. ( BAC ) and Barclays PLC ( BCS ).
Attorneys’ and Other Professionals fee.
Fee examiner Richard Stern recommended approval of about $235.8 million in fees and another $7.2 million in expenses, according to an 87-page report in U.S. Bankruptcy Court in Manhattan. Stern said Kodak fees were reduced by about $8.2 million through consensual deals.
Post Confirmation Activities
After the Debtor completes the post confirmation administrative activities, it will seek a final decree closing the chapter 11 case.