Bankruptcy Judge Confirms Kodak's Plan to Exit Chapter 11

   By Stephanie Gleason 
 

Eastman Kodak Co. (EKDKQ) cleared the final major hurdle in its Chapter 11 case Tuesday, winning a judge's approval of its plan to exit bankruptcy protection.

Bankruptcy Judge Allan L. Gropper's confirmation of 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.

Kodak's plan will see the company exit Chapter 11 protection under the ownership of creditors who agreed to buy 85% of the reorganized company's shares through a rights offering that brought in more than $400 million. The company expects to formally emerge from bankruptcy protection on Sept. 3.

Kodak's "decline and bankruptcy is a tragedy of American economic life," said Judge Gropper, who acknowledged that many of the company's creditors will see only a fractional recovery and shareholders will get nothing. He expressed hope that the company, with a renewed business focus and a restructured balance sheet, would be successful going forward.

"Kodak is a different company than the one in the popular imagination and very different from when it filed for bankruptcy," Kodak lawyer Andrew G. Dietderich of Sullivan & Cromwell LLP said at Tuesday's hearing in the Manhattan bankruptcy court.

Most of the Kodak's creditors voted to back the bankruptcy-exit plan. Three creditor groups--second-lien bondholders and U.S. and U.K. retirees--were unanimous in their support for the plan, while 82.5% of Kodak's unsecured creditors voted for the plan.

The restructuring plan includes an unconventional deal to settle $2.8 billion in claims of Kodak's U.K. pension fund by handing it the company's document- and personal-imaging businesses. The pension fund has agreed to pay $650 million for the businesses.

Kodak's U.S. retirees struck a settlement with the company that gave them an unsecured claim of $635 million after the company terminated their health and other benefits. The restructuring plan gives the U.S. retirees and other unsecured creditors the opportunity to purchase six million shares of Kodak's new common stock through the rights offering, warrants to buy additional shares and a $3 million cash payment.

The company's bondholders are slated to receive payment in full of the $375 million in principal they are owed. They'll also share an additional $20 million payment that was conditioned upon their support of the plan.

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.

"None of the shareholders has provided the slightest evidence that Kodak is solvent," he said.

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).

Kodak, 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.

-Jacqueline Palank contributed to this article.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

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