Eastman Kodak catches some leveraged attention following stream of "negative" company news

By Sara Rosenberg

New York, Sept. 25 - A new name - Eastman Kodak Co. - has appeared on some leveraged players' radars as the company has recently faced downgrades by the rating agencies, a dividend slash and a pretty noticeable drop in bank loan levels.

"Some of the dealers are quoting it now," a trader said in regards to Kodak. "People are trying to create a market for it. It was pretty well close to par. Now the 364-day revolver, with a one-year term-out option, is at 96/98 and the 2006 revolver is at 94/96."

According to the trader, the drop in levels started about two days ago and escalated once the company announced on Thursday morning that in order to maintain financial flexibility it was reducing the dividend to a semi-annual rate of 25 cents per share, compared to the previous semi-annual rate of 90c per share.

Following the news, part of an announcement that the company was focusing on digital technology instead of traditional film, the stock fell, ending down $4.84 or 17.93% at $22.15, said to be an all-time low.

Also on Thursday, Standard & Poor's lowered Kodak's long-term corporate credit rating to BBB- from BBB and short-term corporate credit rating to A-3 from A-2. The outlook is stable.

"The downgrades reflect concern about Kodak's earnings and business profile due to declining prospects for its core conventional imaging businesses as these markets transition to digital technologies; doubts about the profit potential of digital imaging relative to conventional photography; and the need to reduce debt which remains elevated given Kodak's rising business risk and investment strategies," S&P explained. "The stable outlook reflects Standard & Poor's expectation that Kodak's 72% dividend cut will support its credit profile by enabling it to meaningfully reduce gross debt over the near term while still investing for growth in existing and new imaging businesses."

At June 30, the Rochester, N.Y. imaging company had $838 million in cash, $888 million in commercial paper outstanding and $2.225 billion in committed revolving credit facilities, consisting of a $1 billion 364-day facility that expires in July 2004 and a $1.225 billion facility that matures in July 2006, according to S&P.

Last Friday, Moody's Investors Service downgraded Kodak's long-term senior unsecured rating to Baa3 from Baa2 and its short-term rating to Prime-3 from Prime-2. The outlook is negative.

"The downgrades reflect: 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 which is not fully offset by growth of other businesses, 2) while debt has been reduced by about 24% since the first quarter of 2001, 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," Moody's explained.

Rite Aid Corp.'s bank debt was quoted over 101 on Thursday, unchanged from previous levels following the company's release of second quarter results, according to a trader.

These financial results included revenues of $4.052 billion, an increase of 5.1% versus the previous year, a net loss of $10.6 million or 4c per common share, compared to $105.3 million or 21c per common share during second quarter 2002, and adjusted EBITDA of $152.9 million or 3.8% of revenues compared to $125.4 million or 3.3% of revenues last year.

Furthermore, the Camp Hill, Pa. retail drugstore chain updated its guidance for fiscal 2004, now expecting results of $4 million net income and $27 million net loss as compared to previous guidance of a net loss between zero to $63 million. Adjusted EBITDA guidance for the year was changed between $700 million and $725 million compared to the prior range of $675 million to $725 million.

Metro-Goldwyn-Mayer Inc.'s term loan B was quoted at par ¼ bid, par ½ offered on Thursday, flat on the day, following Wednesday's late day announcement that senior management is beginning to evaluate possible alternatives for the company to share some of its wealth with its public shareholders since it has substantial cash and cash equivalents on its balance sheet and currently is generating, and anticipates that it will continue to generate, strong free cash flow. The evaluation would focus on the possibility of a company tender offer for shares and/or an expansion of the company's share repurchase program.

Metro-Goldwyn-Mayer is a Los Angeles developer, producer and distributor of entertainment products.

Centerpoint Energy Inc.'s term loan B seems to have gotten the extra kick that it needed from the addition of call protection on Wednesday into the terms of the deal, according to market sources.

"It's getting very good reception from the banks. They've received some large commitments. Call protection was an added incentive. It's being oversubscribed," a source close to the deal told Prospect News on Thursday.

Under the credit agreement, there is call protection of 102 during the first year and 101 during the second year.

There was some market speculation on Wednesday that the term loan B may end up sized at $800 million as opposed to the originally proposed $1 billion. Asked whether this would in fact be the case, the source responded: "The size of the deal has not been determined."

According to a buy-side source the deal is close to subscribed but not done yet, but "momentum is in the right direction."

The currently sized $2.35 billion credit facility consists of a $1 billion term loan B with an interest rate of Libor plus 350 basis points and an offer price of par, and a $1.35 billion revolver with an interest rate of Libor plus 300 basis points.

Security for the deal is Texas Genco common stock.

Proceeds would be used to refinance the company's existing $2.85 billion credit facility, which consists of a $1.35 billion term loan with an interest rate of Libor plus 450 basis points and a $1.5 billion revolver.

JPMorgan and Citigroup are the lead banks on the Houston public utility holding company's proposed facility.

Meanwhile, the syndicate is looking to close on DRS Technologies Inc.'s credit facility (Ba3/BB-) around mid-October and is currently spending time working on the revolver portion of the deal since the term loan B is essentially done, a syndicate source said.

However, with Bear Stearns and Fleet participating in the $150 million five-year pro rata piece, which is priced at Libor plus 225 basis points, as well, there is relatively little concern over the revolver's ability to syndicate successfully and smoothly.

Prior to Tuesday's bank meeting, they syndicate had already received over $1 billion in orders for the $362.5 million seven-year term loan B, which is priced with an interest rate of Libor plus 275 basis points and is being offered at par.

Bear Stearns and Wachovia are the lead banks on the deal, which will be used to help fund the acquisition of Integrated Defense Technologies Inc.

DRS is a Parsippany, N.J. supplier of defense electronic products and systems.

In follow-up news, Quintiles Transnational Corp. announced on Thursday that it completed its merger with Pharma Services Acquisition Corp., following the Quintiles shareholder meeting at which the shareholders approved the proposed merger.

Under the terms of the merger each share of Quintiles common stock outstanding has been converted into the right to receive $14.50 in cash, without interest.

In connection with this merger, Quintiles obtained a $390 million credit facility (B1/BB-), consisting of a $75 million four-year revolver with an interest rate of Libor plus 325 basis points and a $315 million five-year term loan B with an interest rate of Libor plus 425 basis points.

Citigroup was the lead bank on the deal.

"This transaction is a momentous occasion for Quintiles and we are excited about the long-term advantages for the company," Dennis B. Gillings, Ph.D., chairman and founder, said in a news release regarding the merger. "As a privately held company, Quintiles will be better positioned to serve customers and achieve its growth and earnings potential."

Quintiles is a Durham, N.C. provider of product development and commercial development solutions to pharmaceutical, biotechnology and medical device industries.

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