Kodak creditors talking to advisers-sources

A lone Kodak workers enter corporate headquarters in Rochester, New York January 22, 2004.

(Reuters) - Investors in Eastman Kodak EK.N debt have been talking to law firms and restructuring advisory firms as the company looks at its own strategic options, according to an analyst and a source close to the creditors.

Bankruptcy and restructuring advisory firm Houlihan Lokey is pitching creditors to represent any sort of ad hoc committee they may form, according to Amer Tiwana, a senior analyst and managing director at CRT Capital Group LLC, a broker-dealer. Houlihan Lokey declined to comment.

In addition, a source close to the creditors said the bondholders were also taking pitches from law firms to provide advice after Kodak drew down on a revolving credit line.

Kodak, once synonymous with photography, has struggled to adapt to a technology switch to digital cameras.

The company said on Friday that it had no intention of filing for bankruptcy protection after news outlets reported that it was under consideration.

On Monday, Kodak spokesman Chris Veronda said in an e-mailed statement, "We certainly reiterate that we have no plans to file for bankruptcy and are committed to meeting our obligations. In fact, as you know, we made a coupon payment today on the debt. We can't comment on what others choose to do."

A bankruptcy is not imminent, according to Tiwana, who specializes in distressed company research, but the company is burning through $600 million to $700 million annually in cash, excluding any asset sales. "The management is unlikely to file for bankruptcy until they run out of cash," he said.

The ongoing sale of Kodak's patents may not raise as much money as the company was expecting, according to one industry banker who handles patent sales. Some analysts had estimated that the sale would pull in $2 billion.

The recent sale of Nortel patents had investors excited about the prospects, but the intellectual property market has changed since then, he said.

Kodak last week withdrew $160 million from a revolving credit line, saying it would use the money for general corporate purposes. That news set off a panic among equity investors, who dumped Kodak shares last week.

After the market closed on Friday, Kodak said it had no plans to seek bankruptcy protection, but said it had engaged outside advisors including law firm Jones Day, known for handling the bankruptcy of car company Chrysler.

When trading resumed on Monday morning, shares recovered some of those losses and ended up gaining 71 percent or 56 cents to $1.34 on the New York Stock Exchange.

DEBT TOTALS $1.5 bln

Kodak has multiple layers of debt totaling about $1.5 billion including the secured credit line from Bank of America (BAC.N), two tranches of secured bonds, and multiple layers of unsecured debt. It also has $1.2 billion in unfunded pension obligations. Drawing down on that credit line increased its outstanding senior debt by $160 million.

The company is current on its obligations and on Monday, made a $14 million payment to certain convertible bondholders, it said. But analysts are concerned about their spending.

"It's hard to see how even if they do restructure their debt, that it can function as a going concern given the amount of free cash flow they are burning through this year," said John Witt, an analyst at Fitch Ratings.

In a company's debt structure, senior debt secured by assets has the top spot and is the first to be paid back in the case of a bankruptcy. For Kodak, that is the Bank of America revolving credit line. After that, the two groups of senior secured notes are next in line to be paid back and then the company works its way down through debt that is not secured, or junior debt.

Unfunded pension obligations are a mixed bag in terms of where they stack up in a bankruptcy.

The company has $830 million in guaranteed payments to make on its U.K. defined benefit pension fund that Fitch views as an unsecured claim whose treatment in bankruptcy is uncertain, Witt said.

(Reporting by Caroline Humer, Liana B. Baker, and Nadia Damouni in New York and Tom Hals in Delaware)