February 14, 2012

On Wednesday February 15th, Eastman Kodak's lawyers will be back in court in Manhattan. The topic on this trip to court will be Kodak's request to pay some of its creditors ahead of others. This is a big deal to everyone involved in the Kodak bankruptcy. Every dollar paid to one creditor may be a dollar that can't be paid to another. With a towering pile of IOUs and not enough cash to meet them all, everyone hoping to get paid - vendors, bondholders, retirees - has a stake in this hearing.

Kodak's recent requests to the court suggest that they consider some creditors more equal than others. When Kodak filed for bankruptcy they listed $332 million in trade credits - money owed to vendors. Now Kodak has asked the court to pay $100 million of that in full immediately, claiming that money is owed to unidentified "critical suppliers." Any company that sold goods to Kodak and remains unpaid might be a part of this mysterious group; any one that isn't will be at an immediate disadvantage.

Judge Allan Gropper has seemed willing at times to defer to bondholders - he reduced Kodak's initial DIP financing request from $700 million to $650 million, and initially denied the company's request to pay the critical suppliers. But he's also granted Kodak's request to reduce from 2 weeks to 1 week the window for objections to Kodak's motion that the DIP contract be kept a secret. Where he will come down tomorrow is anyone's guess, but we expect sparks to fly at tomorrow's meeting.

The bankruptcy process is an ebb and flow of information - at times we are flooded with news and at other times we are forced to wait for just a trickle. Tomorrow ought to be closer to a flood.

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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).