Business Context and Reporting Period
Company: Eastman Kodak Company
Filing Type: Form 8-K (Current Report)
Date of Report: May 20, 2019
Event: Entry into a Material Definitive Agreement for a private placement of debt securities.
Key Financial Metrics and Transaction Details
- Debt Issuance: $100 million aggregate principal amount of 5.00% Secured Convertible Notes due 2021.
- Purchase Price: $100 million (issued at par).
- Interest Rate: 5.00% per annum, payable in cash at maturity or at the Company's option in cash or additional shares upon conversion.
- Use of Proceeds: Approximately $83 million to prepay first lien term loans; remainder for general corporate purposes.
- Security: Notes are secured by a second priority lien on certain receivables, inventory, and other assets.
- Conversion Terms: Convertible into Common Stock at a rate of 314.9785 shares per $1,000 principal amount (Conversion Price: $3.17482 per share).
- Liquidity Impact: Proceeds will reduce outstanding term loan debt by approximately $83 million.
Material Changes and Ownership Structure
The transaction represents a significant change in the Company's capital structure and control dynamics:
- Change in Control: Upon issuance and conversion, the Purchasers (funds managed by Southeastern Asset Management, Inc.) would beneficially own approximately 48.94% of Common Stock and hold 55.76% of the voting power of the outstanding capital stock.
- Current Ownership: Prior to the transaction, Purchasers held 11.53% of Common Stock and 26.73% of voting power (on an as-converted basis for Preferred Stock).
- Debt Reduction: The Company intends to prepay approximately $83 million of its Senior Secured First Lien Term Credit Agreement.
- Credit Facility Amendment: The Company intends to amend its Asset-Based Lending (ABL) Credit Agreement to permit the incurrence of the Notes.
Guidance, Outlook, and Risks
- Closing Conditions: Closing is expected in the second quarter of 2019, contingent upon shareholder approval via written consent from non-affiliated shareholders holding a majority of outstanding shares not held by Purchasers.
- Regulatory Approvals: Conversion rights are not effective until approved by a majority of voting stockholders and a majority of voting stockholders not beneficially owned by the Purchasers.
- Extension Option: The maturity date (initially November 1, 2021) may be extended by up to three years if the Series A Preferred Stock is refinanced or its mandatory redemption date is extended.
- Risk of Dilution: The transaction involves significant potential dilution to existing shareholders upon conversion of the Notes.
Investor Verification Checklist
- Verify the execution of Shareholder Support Agreements and the receipt of required written consents for closing.
- Confirm the successful amendment of the ABL Credit Agreement to allow for the new Notes.
- Monitor the actual prepayment of the $83 million term loan to assess immediate debt reduction.
- Review the final terms of the registration rights agreement regarding the shares issuable upon conversion.
- Assess the impact of the Purchasers' increased voting power (55.76%) on future corporate governance and strategic direction.