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Moody’s rates Eastman Kodak issue Baa3, outlook negative Moody’s Investors Service on Monday assigned a Baa3 rating to Kodak’s proposed $500 million senior unsecured notes (maturing October 2013) and $500 million senior unsecured convertible debt (putable in October 2010), which the company announced its intention to Issue Monday. Proceeds from the current offering will be applied to reduce outstanding commercial paper by about $700 million and to partially fund the company’s $500 million cash acquisition of PracticeWorks. The rating outlook is negative.
The Baa3 rating reflects:
1) the company’s significant business exposure to conventional film sales for developed markets and the negative impact on cash flow from an increasing digital substitution rate for conventional film in developed markets,
2) the likelihood that debt reduction will be slowed in the short to medium term, and
3) continued intense competition in consumer digital imaging, which challenges the company’s ability to achieve meaningful profitability within its consumer digital business as a whole. The negative outlook reflects
a) execution challenges to reduce costs of a declining conventional imaging business in developed markets, to scale consumer digital imaging profitability, and to continue growth in health imaging and emerging market businesses and
b) ongoing and increased pricing pressure within the U.S. consumer film market. Moody’s expects Kodak in the near-term will achieve cash flow stability, to continue to grow Health Imaging revenue and operating profit, achieve operating profitability and maintain market share in digital imaging, achieve film growth in emerging markets to more fully offset the decline of conventional film in developed markets, and to continue its focus on debt reduction.
Evidence of continued weakness related to these expectations would put negative pressure on the ratings. The company has undrawn revolving credit facilities of $2.225 billion, supporting a commercial paper program which had $888 million outstanding at June 30, 2003. The facilities consist of $1.225 billion five-year (expiring in July 2006) and recently renewed $1 billion 364-day facility. The company is in compliance with the covenants of the credit facilities. The company had cash balances of $838 million at June 30, 2003.
DEBT RATINGS: Senior Unsecured Rating Baa3; Short Term Rating Prime-3
Headquartered in Rochester, New York, Eastman Kodak is the largest imaging company worldwide.
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