Eastman Kodak Co. Downgraded To #CCC+# From #B-# On Lower Cash Balances, Operating Outlook Negative

Stocks and Financial Services Press Releases Wednesday November 15, 2017 08:59
NEW YORK--15 Nov--S&P Global Ratings
NEW YORK (S&P Global Ratings) Nov. 14, 2017-- S&P Global Ratings today lowered its corporate credit rating on Rochester, N.Y.-based Eastman Kodak Co. to 'CCC+' from 'B-'. The outlook is negative.

We also lowered the issue-level rating on the company's first-lien secured term loan to 'CCC+' from 'B-'. The recovery rating is unchanged at '3', indicating our expectation for average (30%-50%; rounded estimate: 65%) recovery in the event of payment default.

We are downgrading Eastman Kodak due to the considerable decline in cash balances over the past four years, which have shrunk to $342 million as of Sept. 30, 2017, from over $800 million at the time of the firm's emergence from chapter 11 bankruptcy in 2013. Although management expects favorable working capital effects to increase cash to the $360 million-$370 million range by the end of the year, we believe that Kodak's core operations are unlikely to generate meaningful cash over the next 12-24 months due to a weakening commercial printing demand environment, an inability to successfully commercialize investments in 3D printing and other advanced materials technology, and weakening profitability in legacy consumer and film operations. Our negative outlook reflects our view that Kodak will need to divest significant assets or obtain additional external financing in order to meet the 2019 maturity of its outstanding term loan.

Our negative outlook reflects Kodak's track record of operational weakness, diminished liquidity reserves, low covenant headroom, and uncertainty around the ability to successfully execute its announced strategic divestitures and IP monetization strategies. We believe that Kodak's ability to refinance its term loan before its September 2019 maturity is reliant on the execution of planned divestitures and use of proceeds for debt repayment.

We would likely downgrade Kodak further if the firm were unable to execute its planned strategic options, reduce debt, and significantly extend the maturity of its first-lien term loan within the next six months.

We would consider revising the rating outlook on Kodak to stable if a successful refinancing and reduced expenses improve the firm's liquidity position and place the company on track to generate cash sustainably.


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