The cost to protect Eastman Kodak Co. (EK)’s debt from default rose to the highest level in more than a month after the 131-year-old camera maker drew down $160 million from its revolving bank line.
Credit-default swaps linked to the Rochester, New York- based company rose 2.2 percentage points to 41 percent upfront, according to data provider CMA. That means investors would pay $4.1 million initially and $500,000 annually to protect $10 million of Kodak’s debt.
The borrowing came less than a month after Chief Executive Officer Antonio Perez said the patents Kodak is trying to sell have generated interest from potential bidders. The company is trying to raise cash to continue funding inkjet printing and other digital businesses that it has projected will generate operating profits by 2013.
“Here this guy says he is going to sell these patents for a lot of money and now he is borrowing from the bank,” Ken Luskin, chief executive officer of Intrinsic Value Asset Management Inc., which owns 3.6 million Kodak shares, said in a telephone interview. “What is going on? The communication is horrible.”
Kodak shares dropped as much as 20 percent to $1.90 in after-hours trading after closing at $2.38 in regular New York Stock Exchange composite trading
Kodak will pay interest beginning at 1.5 percentage points more than the base rate, the company said today in a regulatory filing. It may repay the money at any time without penalty.
The company entered into a restated credit agreement in April for the five-year asset-based revolving line for up to $400 million. Proceeds may be used for general corporate purposes, including the purchase of its 7.25 percent bonds due in 2013, Kodak said in an April 27 regulatory filing.
The credit facility “has been a part of Kodak’s cash- management tool kit for quite some time,” Christopher Veronda, a spokesman for Kodak, said in an e-mailed statement. “The purpose of the revolving credit facility is to bridge timing differences between cash outflows and inflows, which is a common practice at many corporations.”
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