Kodak hires legal adviser amid talk of bankruptcy

Eastman Kodak is considering filing for bankruptcy as it explores ways to lift its sagging fortunes, according to a person briefed on the matter.

Kodak said on Friday that no bankruptcy filing was imminent, but it did say that it had hired the law firm Jones Day, which has a prominent restructuring practice, to provide advice.

The news of the hiring, just a week after Kodak unexpectedly tapped its credit line, heightened worries about the viability of the company's turnaround plan. With investors again rattled, Kodak's stock price plunged 54 percent on Friday.

"It's one of those cascading effects," said Chris Whitmore, an analyst with Deutsche Bank Securities. "They are kind of cascading over the waterfall."

The chief hope for Kodak, which has reported only one full year of profit since 2004, has been its planned sale of 1,100 digital imaging patents, which the company said accounted for about 10 percent of its total patent portfolio.

While the sale of patents was announced in July, the process is taking longer than expected, a person close to the sales process said, despite a burgeoning market for intellectual property. The phone maker Motorola Mobility, for example, was able to get a $12.5bn takeover deal from Google in large part because of its expansive patent collection. Kodak has said that it has no timeline on the patents sale.

Kodak responded to the talk about bankruptcy on Friday afternoon after first The Wall Street Journal reported the hiring of Jones Day and then Bloomberg News said that a bankruptcy filing was among the options being considered.

"As we sit here today, Kodak has no intention of filing for bankruptcy," Gerard K. Meuchner, a Kodak spokesman, said in a statement. "There has been no change in our strategy to monetize our intellectual property."

The company added: "It is not unusual for a company in transformation to explore all options and to engage a variety of outside advisers, including financial and legal advisers."

Founded 131 years ago by George Eastman and based in Rochester, Kodak became famous for its yellow packages, and its film at one time dominated the market. But the company has struggled to reinvent itself for decades, as digital technology has replaced film.

The current chief executive, Antonio M. Perez, has tried to reinvigorate Kodak by focusing on inkjet printers, commercial printing and the firm's vast portfolio of patents, which the company has licensed and is trying to sell.

Mr. Perez's strategy has caused the company to burn through cash, and Shannon Cross, an analyst with Cross Research, said it was only a matter of time before the cash ran out.

"I've had a sell on the stock for almost 10 years figuring this day would come if they weren't able to make significant changes in their cash burn," she said in an interview on Friday. "We took the price target down to a dollar. We were anticipating that the equity was virtually worthless."

The company had $957m in cash and short-term investments as of June 30, and says it has enough liquidity to meet its obligations for now. The spokesman said Kodak intended to pay a $14m debt coupon payment due on Saturday.

As recently as July, Mr. Perez predicted that Kodak would be a profitable and sustainable digital company by 2012. But the surprise announcement last week that Kodak had tapped its credit line for $160m shook investor confidence in Mr. Perez's turnaround effort.

On Tuesday, Moody's lowered Kodak's ratings even further into junk status, saying the downgrade "reflects the company's weak financial performance and the challenges Kodak faces in achieving sustained profitability and positive cash flow over the intermediate term."

Moody's said the $160m withdrawal was especially troubling since it occurred right before the fourth quarter, typically a strong period for Kodak's cash flow.

Analysts have questioned whether potential bidders are hesitating to participate in the patent portfolio auction because of concerns that a sale would be deemed fraudulent if Kodak were to later file for bankruptcy. (Creditors would be entitled to sue the buyer for what is known as "fraudulent conveyance.")

Mr. Meuchner, the Kodak spokesman, said, "We're not concerned about fraudulent conveyance in regards to the sale of our I.P. portfolio."

The investment firm Lazard, which is advising Kodak on its patent sale, declined to comment, as did James L. Wamsley III, a lawyer at Jones Day.

(Published by NY Times - September 30, 2011)