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Kodak Lenders Send Board Letter on Fiduciary Duty in Asset Sale

Oct. 27 (Bloomberg) -- Eastman Kodak Co.’s lenders sent a letter to the board of directors reminding the company of its fiduciary duty to sell its patent portfolio for fair market value.

Kodak takes its fiduciary duties “very seriously” and shares bondholders’ desire to obtain fair market value for the sale of its intellectual property, the Rochester, New York-based company said yesterday in an e-mailed statement responding to the creditor letter. Kodak is providing “no guidance as to the timing or nature of any transaction,” the statement said.

The second-lien lenders, who are being advised by Akin Gump Strauss Hauer & Feld LLP, cautioned the company it could face lawsuits if it sells patents for less than market value, said people familiar with the matter. They declined to be named because the communication was private. The lender group, led by Avenue Capital Group and Brigade Capital Management LLC, holds some of the $750 million in second-lien debt backed by assets including the patent portfolio, the people said.

The letter steps up pressure on Kodak as it seeks a buyer for digital-imaging patents. The camera company has approached companies including Google Inc., LG Electronics Inc. and HTC Corp. about the portfolio, the people said. Some potential bidders have raised concerns about creditors’ claims on the assets, making a sale more difficult outside of bankruptcy court, these people said. Kodak is seeking to sell the assets outside of bankruptcy, two other people said.

‘Put on Notice’

“Kodak’s board has been put on notice by lenders, who are saying ‘If you destroy value, we will sue you,’” said Amer Tiwana, an analyst at CRT Capital Group LLC in Stamford, Connecticut. “This may increase the chance that Kodak files as the board will have to ask if it really wants to expose itself to a lawsuit. Our view and the market’s view is that the portfolio is worth more in a bankruptcy sale.”

Kodak said in September it has “no intention” of filing for bankruptcy. The company, which is being advised by Lazard Ltd. and Jones Day on the patent sale and restructuring options, has also contacted distressed debt funds over arranging as much as $1 billion in rescue financing, according to the people. No agreement on new financing has been reached, the people said. Potential lenders are pressing for a yield on the loan of as much as 15 percent, the people said.

“We are committed to optimizing our cash generation and, as a matter of course, we are always assessing the financing strategies available to us,” Kodak said in an e-mailed statement yesterday.

‘Significant Value’

The company has been pursuing the sale of its patent portfolio since July and that strategy has not changed, it said.

“These assets are of significant value, and we expect any transaction to reflect that,” the statement said.

The second-lien creditors may fight Kodak’s efforts to raise rescue financing, said the people. That’s because that rescue-financing debt would have priority over the second-lien lenders or be paid back first in a bankruptcy, the people said.

The group of lenders is likely to also hire a financial adviser in coming days to advise on Kodak, one person said. Lenders have spoken to bankers such as Moelis & Co. and Rothschild, the people said.

Separately, a group of Kodak’s unsecured lenders have hired law firm Andrews Kurth LLP in New York to explore their options and rights, said Paul Silverstein, co-chair of the law firm’s bankruptcy and restructuring practice.

To contact the reporters on this story: Jeffrey McCracken in New York at; Jonathan Keehner in New York at; Serena Saitto in New York at

To contact the editors responsible for this story: Jennifer Sondag at; David Scheer at

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