While the term loan of Eastman Kodak Co. dropped last week on news of its upcoming asset sale, it stayed above par as investors tried to hold onto extra yield for the three months before it is expected to get paid out at par.
The paper dipped to 100 1/8-100 3/8 last Wednesday on news of the sale of Kodak Health Group to Onex Healthcare Holdings, a subsidiary of Onex Corp. It then traded back up to 100 1/4-100 1/2 and stayed in that range. It had been trading around 100 7/8-101 1/8 before the news.
Kodak is expected to use the proceeds to pay down its approximately $1.15 billion term loan in full. Because the loan is not expected to be taken out until around April, a dealer said, investors are willing to pay above par--where the term loan will be paid out at--to receive the higher yield for the next three months or so. The term loan is priced at LIBOR plus 2 1/4%.
A Feb. 8 call is scheduled and dealers anticipate learning more about Kodak's plans then, though it is not expected any information given on that day will move the market.
Kodak's loan-only credit default swaps tightened about 20 basis points on the news. They were trading around 60-70 Wednesday and had been trading around 80-100 Tuesday. "It's very tight," one dealer said. "People think [the LCDS] will still be outstanding because the revolver will be outstanding, so it will be priced against the revolver. It tightened because this is considered a good credit event for them." Kodak has a $1 billion revolver that doesn't really trade. It is priced at LIBOR plus 1 1/2%.
Its CDS reached their tightest level since April 2005, according to Markit. They tightened about 25 basis points with the five-year trading around 149 on Wednesday.
Credit Suisse and Goldman will lead the financing to back Onex's purchase, which could cost the firm up to $2.55 billion. The price includes $2.35 billion in cash at closing, plus up to $200 million in additional payments if Onex achieves certain returns with respect to its investment. According to a release, if Onex Healthcare realizes an internal rate of return in excess of 25% on its investment, Kodak will receive a payment equal to 25% of the excess return, up to that $200 million.
The sale is expected to close in the first half of the year, a Kodak company spokesman said. The healthcare group had revenue of $2.54 billion for the last 12 reported months, through Sept. 30. Standard & Poor's said Kodak had $3.3 billion in debt as of Sept. 30.
Kodak reports sales and earnings Jan. 31. The revenue of the healthcare group had declined 6% from about $2.7 billion for the comparable time frame of 2005. The spokesman would not comment about earnings between September and now. The company announced May 4 it was exploring strategic alternatives for the healthcare group and had engaged Goldman to pursue those options. A call to an Onex official was not returned. Goldman Sachs and CS bankers did not return calls and emails.
