Eastman Kodak Co has struck a deal with lenders to amend a credit agreement, granting the ailing company much-needed financial leeway as it struggles to resuscitate demand for its photography products. Kodak said on Friday its new credit facility provides for revolving loans and letters of credit for up to $500 million, and it will no longer have to submit to quarterly testing for two financial covenants as stipulated under a previous deal.
Under the new agreement, based on a previous pact first executed in October 2005, Kodak is subject to a number of restrictions on investment and must pledge a portion of its holdings in units outside of its US home base, among other things. Kodak must also maintain a cash balance of at least $250 million in the United States. Currently, there are $131 million of letters of credit issued under the new agreement and no debt.
"One of our goals for 2009 is to maintain financial flexibility, and we are very pleased to have reached this agreement, especially in this current credit environment," said Chief Financial Officer Frank Sklarsky in a statement. Just a year ago, before the economic downturn discouraged travel and other events that spur photography, Kodak had predicted compound average annual growth of 5 percent from 2008 to 2011.
But last month, ratings agency Standard & Poor's lowered its rating on Kodak to "B-" with a negative outlook, saying the US company was consuming cash too rapidly and warning its cash balances could diminish quickly. In February, the US photography giant, which expects a 2009 loss and is slashing up to 4,500 jobs this year, pledged to trim investment in some cutting-edge technologies such as CMOS image sensors and super-thin OLED screens, saying it would seek partners to bankroll their development.
Executives said they would focus on core businesses, such as digital cameras, retail and professional printing systems and entertainment, which generate significant cash. Kodak's new credit agreement now institutes a minimum fixed charge coverage ratio - used to show that a company can pay its fixed financing expenses - that will apply if borrowing availability falls under $100 million.
The new agreement contains covenants that limit, under certain circumstances, Kodak's ability to take on additional debt or liens, to make certain investments or shareholder distributions or prepay debt.
And its obligations are now secured by liens on substantially all of its non-real estate assets and by a pledge of 65 percent of the stock of certain non-US subsidiaries. The US corporation expects to mortgage certain US property for inclusion in the borrowing base for advances under the new agreement. A company spokesman declined to comment further. Shares of Rochester, New York-based Eastman Kodak closed the regular session down slightly at $4.37 on the New York Stock Exchange. They held steady in after-hours trade.
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