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Moody's, Fitch cut ratings on Eastman Kodak

Rochester Business Journal
September 28, 2011

Fitch Ratings on Wednesday lowered several debt ratings for Eastman Kodak Co., following Tuesday’s news that Moody’s Investors Service Inc. had downgraded its ratings across the board on the company.

Kodak stock (NYSE: EK) plunged again on Wednesday, closing at $1.55 a share, down 15 percent from Tuesday's close of $1.82. It has fallen 35 percent since the stock closed last Friday at $2.38 a share. It hit a low of $1.44 late Wednesday afternoon before regaining some ground.

The Moody’s downgrade affects some $1 billion of debt securities, the ratings company said. Its outlook on Kodak remains negative.

Fitch's also gave Kodak a negative outlook, and the ratings company’s actions affect roughly $1.5 billion in total debt, officials said. It gave the company a “CC” rating, which signifies that “default of some kind appears probable.”

“A weak macro-environment, insufficient scale in the company's key growth initiatives, continued secular decline in traditional film and moderating, but still elevated component costs, will adversely affect the company's seasonally strong second-half, resulting in cash flows below historical levels,” the Fitch Ratings release said.
The Moody’s downgrade reflects its expectations “ongoing weakness in the company's core business operations in addition to a softening demand environment will pressure operating performance and liquidity over the foreseeable future,” said Richard Lane, Moody's senior vice president, in a statement.

Kodak's decision on last Friday to draw down $160 million from its revolving credit facility signals weaker cash flow prospects, as the draw came just prior Kodak's strongest cash flow quarter, the fourth quarter, he added.

He pointed out Kodak had $957 million of cash balances at June 30 and no material debt maturities until November 2013. But the ratings firm anticipates Kodak “will consume cash over the next year, thus weakening its liquidity profile.”

In a statement Monday, Kodak described the draw as using a cash-management tool that allows the company bridge timing differences between cash outflows and inflows.

“Our cash flow is highly seasonal. This is a tool to help that manage that seasonality. It’s one of the reasons a company has a revolver,” company officials said. “We are a global company with the majority of our cash and revenues overseas. For global cash management reasons, we elected to draw down on our revolver. And we are committed to meeting all our obligations.”

The lowering of the corporate family rating reflects Kodak’s weak financial performance and the challenges Kodak faces in achieving sustained profitability and positive cash flow over the intermediate term, Moody’s said. It added Kodak faces intense competitive pressures in its broad digital portfolio and secular decline in its traditional film business. Moody's expects Kodak will continue to operate at a loss over the intermediate term.

The negative outlook reflects the likely weakening in Kodak's liquidity position over the intermediate term, the company said.

(c) 2011 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail

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