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KODK 30M shares hitting market https://www.barrons.com/articles/kodak-stock-convertible-bonds-dilution-shareholders-51596463393?siteid=yhoof2

Kodak Debtholders Are Converting Bonds Into Stock. Here’s What That Means.
By Al Root
Aug. 3, 2020 10:05 am ET



The 30 million shares the convertible bondholders are due are worth about $600 million, far more than the $100 million face value of the convertible bonds.

Newly hot Eastman Kodak announced on Monday that convertible bondholders are converting their holdings into common stock. That means stock dilution for existing shareholders, and shares were falling in early trading. The bonds have been outstanding for years, so some shareholders might have expected the news.

Kodak (ticker: KODK) receives no cash from the conversion and issues new stock, so existing shareholders end up owning less of the company after the process is complete. Still, there are pluses because the debt conversion wipes out some liabilities.

The big minus, of course, is that there is more stock outstanding. The company will issue about 30 million shares of common stock to convertible bondholders. Shares were to be issued on Monday. After conversion, Kodak will have about 75 million shares outstanding, up from up about 44 million before the transaction.

A convertible bond is just what it sounds like, a bond that pays interest but can be converted into a predetermined number of shares. The conversion feature is like an option. It has some value, so companies can often times pay less interest on a convertible bond compared with a conventional bond offering.

The 30 million shares the convertible bondholders are due are worth about $600 million, far more than the $100 million face value of the convertible bonds. It is a windfall profit for bondholders.

Long-term holders of Kodak stock have been doing well, too. Kodak stock has been on a wild ride lately, leaving shares up about 379% year to date, far better than comparable returns of the S&P 500 and Dow Jones Industrial Average over the same span. Shares touched a high of $60 on July 29, before falling back to about $22 Friday afternoon.

A surprise announcement that the company is due to receive a $765 million loan from the government to make generic-drug ingredients in the U.S. was the catalyst for the stock rally. The loan was made under the recently invoked Defense Production Act.

Kodak stock was down almost 13% Monday morning to $19.05. Investors can expect shares to have another volatile week as former convertible bondholders decide whether to hold or sell their new Kodak stock.

Write to Al Root at [e-mail]