Kodak 2006 Annual Report Download - page 55

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Short-Term Borrowings
As of December 31, 2006, the Company and its subsidiaries, on a consolidated basis, maintained $1,110 million in committed bank lines of credit and
$616 million in uncommitted bank lines of credit to ensure continued access to short-term borrowing capacity.
Secured Credit Facilities
On October 18, 2005 the Company closed on $2.7 billion of Senior Secured Credit Facilities (Secured Credit Facilities) under a new Secured Credit
Agreement (Secured Credit Agreement) and associated Security Agreement and Canadian Security Agreement. The Secured Credit Facilities consists
of a $1.0 billion 5-Year Committed Revolving Credit Facility (5-Year Revolving Credit Facility) expiring October 18, 2010 and $1.7 billion of Term Loan
Facilities (Term Facilities) expiring October 18, 2012.
The 5-Year Revolving Credit Facility can be used by Eastman Kodak Company (U.S. Borrower) for general corporate purposes including the issuance
of letters of credit. Amounts available under the facility can be borrowed, repaid and re-borrowed throughout the term of the facility provided the
Company remains in compliance with covenants contained in the Secured Credit Agreement. As of December 31, 2006, there was no debt outstanding
and $141 million of letters of credit issued under this facility.
Under the Term Facilities, $1.2 billion was borrowed at closing primarily to refinance debt originally issued under the Company’s previous $1.225
billion 5-Year Facility to finance the acquisition of Creo Inc. on June 15, 2005. The $1.2 billion consists of a $920 million 7-Year Term Loan to the U.S.
Borrower and $280 million 7-Year Term Loan to Kodak Graphic Communications Canada Company (KGCCC or, the Canadian Borrower). Pursuant to
the terms of the Secured Credit Agreement, an additional $500 million was available to the U.S. Borrower under the seven-year term loan facility for
advance at any time through June 15, 2006. On June 15, 2006, the Company used this $500 million to refinance $500 million 6.375% Medium Term
Notes, Series A, due June 15, 2006. This term loan matures on October 18, 2012 and may be prepaid in whole or in part at specified interest reset
dates without penalty. These obligations are secured through asset and equity pledges as described below.
At December 31, 2006, the balances for these secured credit facilities reported in Long-term debt, net of current portion, on the Consolidated State-
ment of Financial Position were $861 million and $277 million for the U.S. Borrower and the Canadian Borrower, respectively. The Secured Credit
Agreement requires mandatory quarterly prepayment of .25% of the outstanding advances. Debt issue costs incurred of approximately $57 million
associated with the Secured Credit Facilities were recorded as an asset and are being amortized over the life of the borrowings.
In the fourth quarter of 2006, the Company prepaid $542 million on its Term Loan Facility. In conjunction with this prepayment, the Company wrote off
approximately $9 million of debt issuance costs associated with the early extinguishment of debt.
On January 10, 2007, the Company announced that it had entered into an agreement to sell its Health Group to Onex Healthcare Holdings, Inc., a
subsidiary of Onex Corporation. Under terms of the agreement, the Company will sell its Health Group to Onex for up to $2.55 billion. The price is
composed of $2.35 billion in cash at closing, plus up to $200 million in additional future payments if Onex achieves certain returns with respect to
its investment. If Onex Healthcare investors realize an internal rate of return in excess of 25% on their investment, the Company will receive payment
equal to 25% of the excess return, up to $200 million.
Because of tax-loss carry forwards, the Company expects to retain the vast majority of the initial $2.35 billion cash proceeds. The Company plans to
use the proceeds to fully repay its approximately $1.15 billion of secured term debt.
Pursuant to the Secured Credit Agreement and associated Security Agreement, each subsidiary organized in the U.S. jointly and severally guarantees
the obligations under the Secured Credit Agreement and all other obligations of the Company and its subsidiaries to the Lenders. The guaranty is sup-
ported by the pledge of certain U.S. assets of the U.S. Borrower and the Company’s U.S. subsidiaries including, but not limited to, receivables, inven-
tory, equipment, deposit accounts, investments, intellectual property, including patents, trademarks and copyrights, and the capital stock of “Material
Subsidiaries.” Excluded from pledged assets are real property, “Principal Properties” and equity interests in “Restricted Subsidiaries”, as defined in
the Company’s 1988 Indenture.
“Material Subsidiaries” are defined as those subsidiaries with revenues or assets constituting 5 percent or more of the consolidated revenues or as-
sets of the corresponding borrower. “Material Subsidiaries” are determined on an annual basis under the Secured Credit Agreement.
Pursuant to the Secured Credit Agreement and associated Canadian Security Agreement, Eastman Kodak Company and Kodak Graphic Communica-
tions Company (KGCC, formerly Creo Americas, Inc.), jointly and severally guarantee the obligations of the Canadian Borrower, to the Lenders. Sub-
sequently, KGCC has been merged into Eastman Kodak Company. Certain assets of the Canadian Borrower in Canada were also pledged in support of
its obligations, including, but not limited to, receivables, inventory, equipment, deposit accounts, investments, intellectual property, including patents,
trademarks and copyrights, and the capital stock of the Canadian Borrower’s Material Subsidiaries.
Interest rates for borrowings under the Secured Credit Agreement are dependent on the Company’s Long Term Senior Secured Credit Rating. The
Secured Credit Agreement contains various affirmative and negative covenants customary in a facility of this type, including two quarterly financial
covenants: (1) a consolidated debt for borrowed money to consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (sub-
ject to adjustments to exclude any extraordinary income or losses, as defined by the Secured Credit Agreement, interest income and certain non-cash