Kodak says interest widens in its debt refinancing

ROCHESTER — Eastman Kodak Co. expects to draw $400 million of its $700 million in debt refinancing from qualified institutional buyers rather than from private equity fund Kohlberg Kravis Roberts & Co.

The photography pioneer, battling to remodel itself in the digital age, said pension funds, hedge funds and other institutional investors have showed stronger-than-expected interest in buying convertible senior notes, or unsecured debt, that will bear interest at 7 percent a year.

Kodak had expected KKR would provide up to $400 million of the refinancing. But the company said Thursday night that only $300 million will come from the equity firm, which is buying senior secured notes at an interest rate ranging from 10 percent to 10.5 percent.

"It's a better deal" for Kodak, said Ulysses Yannas, a broker with Buckman, Buckman & Reid in New York.

Kodak shares fell 39 cents, or 6.6 percent, to close at $5.54 Friday. The stock, which has rallied from an all-time low of $2.01 in March, slumped 11.2 percent Thursday.

Launched in 1976, KKR is best known for its $25.1 billion purchase of RJR Nabisco Inc. in 1989. Its largest leveraged deals include the 2007 buyout of Texas electric company TXU for $32 billion plus debt, and the $21 billion acquisition of hospital operator HCA in 2006.

KKR will be given two seats on Kodak's board of directors and will be issued warrants to purchase up to 40 million shares, which represents almost 15 percent of Kodak's 268 million shares currently outstanding. If it had provided $400 million in financing, it could have garnered a 19.8 percent stake.

Kodak intends to use proceeds from both debt sales to help pay off $575 million in debt potentially due in October 2010.

The global economic downturn has crimped sales of digital cameras, film and other photography products. In January, Kodak said it is shedding 3,500 to 4,500 jobs this year, reducing its payroll to around 20,000 from a 1988 peak of 145,300.