The recent struggles of iconic camera and electronics company Eastman Kodak could be bad news for one of private equity’s biggest players. Last week, the Wall Street Journal reported that Kohlberg Kravis Roberts’ portfolio company was preparing to file for bankruptcy and has implemented a “last-ditch” plan to sell off some of its patents.
Since KKR made its initial investment in Kodak in 2009, the company’s share price has spiraled downward, closing on $0.40 on 9 January. Kodak has struggled as camera users have drifted from traditional film to digital products. In the last decade, the company has explored several new product lines, most notably printers, to stay above water. Kodak could file for bankruptcy as early as February, according to reports.
In its original investment, KKR acquired $300 million in Kodak’s senior secured notes, as well as warrants to purchase 40 million shares of its common stock at an exercise price of $5.50 per share. Kodak repurchased the notes in February 2010, but KKR still holds warrants, a firm spokesperson confirmed.
KKR declined to comment further on this story.
A stock warrant is a security that allows the owner to purchase stock in a company at a previously set price, usually with an expiration date attached. The securities are frequently granted through the acquisition or issuance of bonds as a deal sweetener, and can be held separately from the bonds themselves.
Under the terms of the agreement, KKR was required to hold the warrants, or shares received upon exercise of the warrants, for a minimum of two years, a period that concluded in September, 2011. The warrants are exercisable until the eighth anniversary of the transaction’s completion in September 2017.
KKR also had the right to nominate up to two members of Kodak's board of directors based on terms of the investment. In December, both of the firm’s representatives resigned from their respective positions on the board.
It is unclear how the warrants would be valued given Kodak’s precipitous decline. The company’s current share price represents only 7.3 percent of the exercise price on the warrants, which are typically exercised only when the stock rises above that level.
Kodak repurchased the $300 million in senior notes from KKR in February, 2010. Details of the repurchasing agreement were not disclosed by Kodak or the firm. Kodak could not be reached for comment.