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Derivatives

Kodak Widens On Ratings Downgrade

Spreads on Eastman Kodak credit-default swaps widened approximately 100 basis points last Wednesday on the back of a credit rating downgrade on its debt and uneasiness among investors over the company's declining profits.

A New York-based trader reported that five-year credit-default swap spreads on Kodak widened to about 350bps last Wednesday from about 170bps the previous week, as investors looked to buy protection. "Kodak had a real blowout. Its earnings are continually getting worse. It's beginning to look a lot like Xerox (DW, 10/9/00)--bad earnings and no product," the trader said. Kodak published weak earnings in October after agreeing to take a cut in its gross margin to secure a health-imaging contract earlier in the year, according to an equity analyst in New York. Another analyst said Kodak was downgraded because of weak earnings and the expectation that it will remain in a profit slump as a decline in leisure travel will continue to draw from the company's core film sales.

Standard & Poor's recently downgraded Kodak's senior unsecured debt to A minus from A plus. Steve Wilkinson, an analyst at S&P in New York, said Kodak will experience further deterioration of its credit profile. It is unlikely that Kodak's financial situation will improve until late next year, he added.

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