Goal #2 : Get options on the new stock, in a company that has been cleansed of legacy liabilities.
How: settle with UK pension using NON US cash and proceeds from sales of divisions and real estate.
While still complying with covenants for exit financing.
MAIN covenant: at least $800 million in global cash.
After Kodak sells all assets that are currently for sale, and settles UK pension, they will be left with appx. $500 million in NON US cash, and appx. $400 million in US cash, commercial graphics, CI, and theatrical film
EBITDA of remaining operations estimated at $170 million for 2013. 4 X EBITDA= appx. $700 million
Plus cash = appx. $1. 6 billion of assets
Exit financing is appx. $650 million.
2nd liens: $375 million
Secured and 2nd liens must be 100% covered before assets are available to UN secured.
So, $1.6B - $1B leaves appx. $ 600 million of assets(NEW stock value) for UN secured.
$635 M OPEB + $680 M bonds + $160M trade claims+ $40 M ATLC + $70 M Fuji + $100 M environmental + $100M other(including exec pension= appx. $1.8 B total UN secured
$600 M (new stock value) is appx. 33% recovery for general UNsecured.
Management gets their bonus, while valuing the NEW stock at 1/3 of breakup value.
Management will then profit from options on greatly undervalued NEW stock.
And THAT is how the CH.11 GAME is PLAYED to benefit the management.
Many of the same DOUCHE bags that drove Kodak into BK, will benefit when Creditors get cheap NEW stock, while shareholders get ZERO.
Even the full break up value of Kodak would NOT leave any value for current shareholders!!!!
Therefore, management will produce just enough recovery to earn their bonuses, but still produce a greatly undervalued NEW stock, so their NEW options have significant value.
Hello Proforkodak, I appreciate your vast knowledge of financials re: Kodak. For me, as a private, retail investor, what happens of Kodak "cancels" the current shares for new shares? Do I lose my entire investment? Do I get the same amount of new shares? I'm totally in the dark on this, and hesitant to invest. I understand your point that investors underwater are being abandoned by management, but what about new investors? Is this a strong buy right now? Much appreciate any help you can offer....
All shares owned prior to cancellation are treated the same, they will become worthless.
You have 2 choices:
1) Wait until New shares start trading on a when issued basis, and buy .
2) Buy one of the the Unsecured bonds, that will be exchanged for new shares.
Kodak shares are a strong sell, because they will become worthless when they are cancelled.
Current shares will not be receiving anything!
Kid/insect will be happy to send glue to any current holder who wishes to use his shares as wall paper, since that is all they be good for.
That plan never got approved..... I fear Perez and his fellow CRIMINALS are now seeking to destroy the Unsecured in order to obtain a far greater share of the NEW stock for themselves...
The AUDACITY of these criminals!!! After destroying Kodak, they want to be rewarded with a piece of the new company....
They should be hung from the Kodak tower, and let the birds pick out their eyes!
Pro can you:
- Deny that the latest MOR shows a 1.3 billion dollar equity deficit that does NOT include 750 million dollars from ROW?
- Deny that the UK pension liability is VASTLY OVERINFLATED?
- Deny that it is clear in the latest LAZARD billing statement that at least one Project SOLD?
- Deny that 1.3 billion MINUS 750 million MINUS pension liability reduction MINUS $$ from sale of divisions equals POSITIVE EQUITY?
You throw up LOTS of numbers, just like before. Always #$%$ poor in hind sight.
I think you FAIL to understand that the MOR is NOT a balance sheet for Kodak, because it fails to include NON US liabilities.
That is why the 10K states: UNLIKELY to propose a distribution to the stock.
If there is equity, then the UN secured claims will be made WHOLE....
So, you are suggesting that the UN secured claims that are trading at 12 to 13 are worth 100?
Before the current shareholders get a penny, UN secured MUST be made WHOLE!!!
If the Queen had balls, she would be King.
If you are correct, to which the ALL the sophisticated credit hedge funds DISAGREE, then the bonds FIRST have to be made worth 100!!!!
So, you think you are correct, and the ENTIRE world is wrong?????
In almost every public company ch.11 where the shareholders are far out of the money, management
works with top creditors to greatly undervalue the enterprise, so they can get cheap options, while the top creditors receiving stock get deeply discounted shares.
This is why the Unsecured committee is now at war with Kodak.
Instead of Kodak supporting a full valuation of the assets, which would mean few shares to the 2nd liens, management has cut a deal with the top 2nd lien holders.
Because the CI division is still USING cash to grow, it reduces the valuation put on the cash generating commercial graphics business, which reduces the "going concern" valuation.
The commercial graphics is generating appx. $200 million of EBITDA on $1.7 billion revs, and generates FREE cash flow of over $100 million. This business is stable, and has a worldwide market share of appx. 35 to 40%. So, this business on its own is worth at least 4 X EBITDA, or alternatively 8 X Free cash = $800 million.
The CI division is appx. $600 million of revs and growing. Packaging is a clear growth market worldwide, yet it is only appx. $100 million business at Kodak, and consuming cash to grow.
The other part of the CI is digital systems to create photos, and commercial digital printing( $500 million revs). Additionally, Kodak is developing NON media printing businesses called function printing( printed
circuits, 3D, etc.) Kodak has top technology, but as usual is burning cash.
The CI businesses are greatly coveted by everyone in the printing industry, including heavy weights XRX, HPC, Canon, Samsung, etc,
But, the going concern valuation places a NEGATIVE value on these businesses.
( I am putting zero value on the theatrical film for this analysis, even though it will do a few hundred million of revs and generate $50 million of EBITDA.)
If a break up value was placed on Kodak, the CI would be worth at least 1 times revs or $600 million.
Breakup valuation= $800 million CG + $600 million CI= $1.4 billion plus $900M cash = $2.3 B
less Jr DIP and 2nd liens of appx. $1B = $1.3 B for Unsecured
$1.3B/ $1.8B= 72% recovery.
But more importantly, in the going concern valuation, 2nd liens get appx. 50% of the NEW equity.
In a break up valuation, 2nd liens would get a much smaller slice of the NEW stock.
Breakup value of $2.3B - $650M of secured leaves $1.65 B of remaining assets.
$375 2nd liens would then get ONLY 23% of NEW shares.
Leaving 67% of NEW shares for UN secured.
IF, the CI portion of Kodak, under NEW management were to grow as forecasted, then UN secured would receive 2/3 of the benefits, rather than only half of the benefits.
This is BATTLE that is raging between UN secured versus Kodak management/2nd liens.
While some of the OPEB purchasers are cross over buyers from the 2nd liens, appx. half are from NON holders of the 2nd liens.
The majority of the UNsecured bonds are held by NON 2nd liens.
Kodak's POR will most likely NOT be accepted , unless the Unsecured bonds and NON 2nd liens OPEB holders are on board.
A compromise valuation would push the UN secured initial RECOVERY up to appx. 50 cents on the dollar.
Management will get a larger bonus for the higher percentage recovery, and still get options on NEW stock.
Management has much more future upside from getting a boat load of options on a greatly undervalued NEW stock, rather than a slightly better bonus, on a more fairly valued NEW stock, and that is why management is siding with the 2nd liens.
A better POR for the UN secured, would include a sale of the CG business, so the cash proceeds could be used to pay off 2nd liens, leaving all the NEW shares in the growing CI business in the hands of the UN secured.