US CREDIT-Kodak share buyback won't harm credit

By Karen Brettell

NEW YORK, June 24 (Reuters) - Eastman Kodak Co's (EK.N)
debt protection costs rose on Tuesday after the company
announced it would buy back up to $1 billion in shares, but
proceeds from a tax refund and a strong cash balance will make
the impact on its credit profile minimal.

Kodak said it would fund part of the stock repurchase
program, which is authorized through the end of 2009, from a
$581 million tax refund also announced on Tuesday. The
remainder is expected to come from available cash on hand. For
details, see [ID:nN24335399].

"Already flush with cash, the buyback will place little, if
any, strain on company resources," Terrence Dwyer, an analyst
at KDP Investment Advisors, said in a report.

Kodak had $2.20 billion in cash and cash equivalents as of
March 31.

The buyback "still leaves the company with a huge cash
value and an easily manageable near-term debt maturity
schedule," Dwyer said.

Still, the cost to insure Kodak's debt with credit default
swaps jumped to 420 basis points, or $420,000 per year for five
years to insure $10 million in debt, from 360 basis points at
Monday's close, according to CMA DataVision.

"We view it as not having impact on the rating, its not
debt-funded," said John Witt, an analyst at Fitch Ratings in
New York.

Fitch rates Kodak "B," five steps below investment grade,
with a stable outlook. Moody's Investors Service also affirmed
its "B1," ratings on Kodak, four steps below investment grade,
with a stable outlook.

Kodak has struggled to stem declining revenues as digital
technology takes over from its traditional, more profitable
film business.

The sale last year of its medical imaging business helped
the company pay down some of its debt and stabilize its credit
ratings. Further improvement, however, relies on the company
proving it can increase revenues.

"The balance sheet being fairly strong, there really isn't
much there in terms of areas for improvement, so its definitely
on the operational side," said Fitch's Witt. "The biggest issue
is digital profitability as well as actual digital revenue as
the company transitions from traditional film to a digital
company."

The company also announced last month that it was
increasing its prices, after recording a bigger-than-expected
first-quarter loss in May on higher silver and aluminum costs,
and increased spending on its inkjet printer business weighed
on margins.

Kodak said it would raise prices on some products by as
much as 20 percent.

"If they can push the prices through, and the customers are
willing to absorb those, then that's clearly a positive," said
Witt.
(Editing by Jonathan Oatis)