Kodak 2008 Annual Report Download - page 73

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Secured Credit Facilities
On October 18, 2005 the Company closed on $2.7 billion of Senior Secured Credit Facilities (“Secured Credit Facilities”) under a
Secured Credit Agreement (“Secured Credit Agreement”) and associated Security Agreement and Canadian Security Agreement.
The Secured Credit Facilities consisted 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. Due to the
full repayment of the outstanding borrowings in 2007, the Term Facilities are no longer available for new borrowings.
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.
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 supported 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, inventory, 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 assets of the corresponding borrower. Material Subsidiaries will be 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 Communications Company (“KGCC”, formerly Creo Americas, Inc.), jointly and severally guarantee the obligations of the
Canadian Borrower, to the Lenders. Subsequently, KGCC has been merged into Eastman Kodak Company. Certain assets of the
Canadian Borrower in Canada were also pledged, 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.
In addition, subject to various conditions and exceptions in the Secured Credit Agreement, in the event the Company sells assets for
net proceeds totaling $75 million or more in any year, except for proceeds used within 12 months for reinvestments in the business
of up to $300 million, proceeds from sales of assets used in the Company's non-digital products and services businesses to prepay
or repay debt or pay cash restructuring charges within 12 months from the date of sale of the assets, or proceeds from the sale of
inventory in the ordinary course of business, the amount in excess of $75 million must be applied to prepay loans under the Secured
Credit Agreement.
The Company pays a commitment fee at an annual rate of 50.0 basis points on the undrawn balance of the 5-Year Revolving Credit
Facility at the Company’s current Secured credit rating of Ba3 and BB- from Moody's Investor Services, Inc. (“Moody's”) and
Standard & Poor's Rating Services (“S&P”), respectively. This fee amounts to $4 million annually, and is reported as Interest
expense in the Consolidated Statement of Operations.
Interest rates for borrowings under the Secured Credit Agreement are dependent on the Company’s Long Term Secured Credit
Rating. The Company’s 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 a rolling four-quarter sum of
consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) (subject to adjustments to exclude any
extraordinary income or losses, as defined by the Secured Credit Agreement, interest income and certain non-cash items of income
and expense) ratio of not greater than: 3.5 to 1 as of December 31, 2006 and thereafter, and (2) a consolidated EBITDA to
consolidated interest expense (subject to adjustments to exclude interest expense not related to borrowed money) ratio, on a rolling
four-quarter basis, of no less than 3.0 to 1. As of December 31, 2008, the Company maintained a substantial cash balance and was
in full compliance with all covenants, including the two financial covenants, associated with its Secured Credit Agreement. The
Company maintains this credit arrangement in order to provide additional financial flexibility. As of December 31, 2008, there was no
debt outstanding and $131 million of letters of credit issued, which are not considered debt for borrowed money under the
agreement, but do reduce the Company’s borrowing capacity under the Secured Credit Agreement by this amount.
Based on the Company’s current financial forecasts, it is reasonably likely that the Company could breach its financial covenants in
the first quarter of 2009 unless an appropriate amendment or waiver is obtained. The Company is currently negotiating with its
lenders to ensure it has continued access to a Secured Credit Agreement, with the goal to have an amended credit facility in place
by the end of the first quarter.