January 23, 2012

As the sun rises on Kodak's first full week in Chapter 11 bankruptcy protection, many questions are being answered, and a few ones are being raised.

  1. A Q&A piece issued by Eastman Kodak after their bankruptcy filing has stated clearly that current and former employees who have a balance in Kodak's 401k (known as SIP) can rest assured that their money will remain accessible to them without interruption. Some observers had speculated that SIP access would be frozen. Dispelling this notion was one of the principal reasons our firm developed our Community Resource Meetings for Kodak employees and retirees, in an attempt to bring clarity to a situation filled with rumor, half-truth, and urban legend.
  2. We have been saying at our meetings that the insurance "wrapper" that has kept the SIP Fixed Income Fund a stable, comparatively high-yielding investment would at some point be discontinued. It didn't take long for that. The Fixed Income Fund (formerly "Fund D") will be no more, effective February 1st 2012. All assets will be moved into a new Short-Term Bond Fund comprised of high quality bonds. We've heard from many participants who are apprehensive of the change, mainly due to concerns about risk. But the new fund should have very low risk, if equally low return.
  3. An ominous note was sounded by the Pension Benefit Guarantee Corp (PBGC) about Kodak's pension, known as KRIP. The latest numbers we have about KRIP stated it was 96% funded, a comfortable level. PBGC's latest release mentions 86% and calls KRIP "reasonably well-funded" (our italics). The lower funding level may be a result of differing assumptions by Kodak and the PBGC, but we will be watching carefully for what they mean by "reasonably."
  4. CEO Perez mentioned in his recorded statement last week that it would be "business as usual" at Kodak. I suppose if doubling the collective blood pressure of your work force and requiring court approval for every dollar you spend is business as usual, he's right. At least the company will continue to operate while it seeks to reorganize.
  5. Remember Collins Ink? They are the Kodak supplier that caused a splash last fall when they sought to cancel their agreement with Kodak out of concern that a bankruptcy would leave Collins, a small company, stuck with a large unpaid bill. A quick trip to court settled the matter and Collins kept supplying ink. Unfortunately for Collins, their prediction came true. They are owed $1,889,468 and will likely get only a fraction of that amount when the bankruptcy is settled.
  6. This bankruptcy may be shaping up to be a fight between management, who expect to control the process and lead the company back to health; and bondholders, who have lent Kodak nearly $2 billion and would like to get paid. It looks like bondholders may challenge management for the right to run the company. Attorneys for the bondholders took shots at the Perez team in court, suggesting that management bled the company and that giving them too much cash would be "to everyone's detriment."
  7. On Friday January 27th, in conjunction with Senator Joe Robach's office, we will be hosting another Community Resource Meeting at the Town of Greece Community and Senior Center, 3 Vince Tofany Blvd in Greece. We'll have room for 300 people, but like our other meetings, this one is beginning to fill up. For seats, please call our Kodak Hotline at 585-340-2246.

GTC

 

(This article contains the current opinions of the author but not necessarily those of Brighton Securities Corp. The author's opinions are subject to change without notice. This blog post is for informational purposes only. Forecasts, estimates, and certain information contained herein should not be considered as investment advice or a recommendation of any particular security, strategy or investment product. References to specific securities and their issuers are for illustrative purposes only and are not intended and should not be interpreted as recommendations to purchase or sell such securities).