Analysis: Troubled Kodak faces UK pension woes

Wed Jan 11, 2012 6:34pm EST
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By Caroline Humer and Sue Zeidler

(Reuters) - Eastman Kodak EK.N, an American icon that is struggling to survive, could find that one of its costliest problems hails from overseas.

The bill is coming due for years of generous pensions and other benefits that the photography company promised employees, especially in the UK where it has manufacturing operations dating to the 1800s and still supports thousands of retirees.

Whatever Kodak's fate as it grapples with a global shift to digital photography, five consecutive years of annual net losses and a consistent cash drain as it spends on new businesses, the UK pension problems are not going away.

Kodak has promised to spend about $800 million over the next decade to shore up its UK pension fund. Unlike its UK counterpart, Kodak's U.S. fund has gotten no such pledges from the company, and as of the end of 2010 was fully funded.

The UK Pensions Regulator can seek legal authority under UK law to take aim beyond its borders -- its so-called moral hazard powers -- setting up a scenario in which UK pension interests could be a major factor in any Kodak restructuring. UK pension fund trustees and regulators have increasingly tried, with some success, to maneuver U.S. companies into paying more into underfunded UK plans in recent years.

There could be "substantial pensions claims" from the UK against Kodak if the company lands in bankruptcy, said attorney Paul Silverstein of law firm Andrews Kurth LLP. He is advising some Kodak creditors who may have claims against the company.

Rochester, New York-based Kodak is engaged in financing negotiations with its lenders, as part of an effort to raise cash, according to a source with direct knowledge of the talks but who declined to be identified because the discussions are not public.

Bankruptcy is a possible outcome, this person said.   Continued...