Tag: dfc

Kodak shares surge on news of DFC loan investigation

Eastman Kodak Co. shares surged on Monday on news that regulators had found no wrongdoing in a loan process that would have had the company manufacturing chemicals for COVID-19 and generic drugs.

Following a report from the Wall Street Journal indicating that government officials had done nothing wrong in the days and weeks leading up to the announcement of a $765 million loan Kodak was expected to be awarded, shares of Kodak stock (NYSE: KODK) rallied more than 80 percent on Monday, closing the day up 60 percent at $12.04.

The Wall Street Journal on Sunday reported that the inspector general of the U.S. International Development Finance Corp., the agency that in July signed a letter of interest with Kodak to provide the loan, found no wrongdoing in the process that created the loan. That follows an internal investigation on behalf of Kodak that cleared the company in September.

In the DFC report, Inspector General Anthony Zakel said he found no evidence that employees of the agency had any conflicts of interest in the plans, according to the Wall Street Journal story. Zakel also said he did not find “any evidence of misconduct on the part of DFC officials.”

The DFC assessment also stated that it was reasonable for the agency to consider Kodak for the loan, noting other companies’ pivots to COVID-19 supply-chain manufacturing and Kodak’s experience providing materials to the pharmaceutical industry.

The Securities & Exchange Commission and Congress also launched investigations into the deal, neither of which have been concluded.

When Kodak and the DFC on July 28 announced details of the loan, which had not been finalized, Kodak shares soared from a July 27 close at $2.62 to more than $16. Within two days, shares had reached $43.45, and at one point the stock reached $60 per share.

A week later, the SEC and Congress said they would look into the possibility of misconduct on behalf of Kodak leaders. Kodak Executive Chairman James Continenza was issued 1.75 million stock options by the board the day before the loan announcement, triggering an outcry by investors and the public.

SEC filings showed that Continenza purchased 46,700 additional shares of Kodak stock, while board member Philippe Katz purchased 5,000 shares on the same day. In an interview with CNBC following the announcement, Continenza said Kodak had been working on the loan deal for a “few months” prior to the July 28 announcement.

The potential windfall from the $765 million loan would have allowed Kodak to reinvent itself with a new division, Kodak Pharmaceuticals, that would manufacture components of generic drugs and enable the U.S. to rely less on China for its pharmaceuticals. It is unclear whether the DFC loan is still on the table, but Kodak officials have repeatedly said the company will move ahead in making the drug ingredients, regardless of whether it receives government assistance.

While Kodak’s internal investigation by an independent law firm found that company executives and officers did not participate in insider trading, the report has no legal bearing on the SEC investigation, said an analyst with ASB Capital in a November Seeking Alpha article. Moreover, this week’s DFC report doesn’t specifically clear Kodak of wrongdoing either.

Shares of company stock midday Tuesday were trading down from Monday’s surge at $11.27.

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Kodak shares tank on news of loan suspension

The U.S. International Development Finance Corp. (DFC) has put a hold on its $765 million loan to Eastman Kodak Co. in light of an investigation of the matter by the U.S. Securities and Exchange Commission. The agency made the announcement on Twitter Friday evening.

As a result, Kodak shares (NYSE: KODK) plummeted Monday more than 40 percent from Friday’s close at $14.88. By the close of trading, shares had rebounded slightly to $10.73.

When Kodak and the DFC on July 28 announced details of the loan, Kodak shares soared from a July 27 close at $2.62 to more than $16. By Wednesday morning, shares had reached $43.45.

But on Aug. 4, The Wall Street Journal reported that the U.S. Securities and Exchange Commission will investigate the circumstances surrounding the loan. Congressional leaders also are looking into both the loan and the substantial number of shares picked up by company leaders ahead of the announcement, according to a letter sent to Kodak Executive Chairman James Continenza.

Continenza was issued 1.75 million stock options by the board the day before the loan announcement, triggering an outcry from analysts and investors.

“On July 28, we signed a letter of interest with Eastman Kodak,” Friday’s DFC tweet read. “Recent allegations of wrongdoing raise serious concerns. We will not proceed any further unless these allegations are cleared.”

In a retweet of the DFC’s tweet Friday, Peter Navarro, assistant to the President and director of the Office of Trade and Manufacturing Policy at the White House, said “VERY disappointed last week’s great deal with Kodak tarnished by allegations. Absolutely RIGHT move by DFC! We must redouble efforts to bring our pharma manufacturing home!!”

The potential windfall would allow Kodak to reinvent itself with a new division, Kodak Pharmaceuticals, that would manufacture components of generic drugs.

The July 28 letter of interest noted that it was not a done deal and that the loan could be any dollar amount up to $765 million. Both Kodak and the DFC said at the time that they could continue due diligence.

On Monday, a Kodak spokesperson said the company appreciates and supports the DFC’s decision to await clarification before moving forward with the process. In fact, on Friday, Kodak said it had appointed a special committee of independent directors to oversee an internal review of “recent activity” by the company and related parties in connection with the loan.

The committee comprises directors Jason New and William Parrett and the internal review will be conducted for the committee by Akin Gump Strauss Hauer & Feld LLP.

Kodak is slated to report quarterly earnings on Tuesday.

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Kodak loan under scrutiny

It’s a Kodak Moment the company probably wasn’t planning on.

When Eastman Kodak Co. announced last week that it would receive a $765 million loan from the government to begin manufacturing generic drugs here and at a plant in Minnesota, it was met with much fanfare. And deservedly so.

After all, Rochester’s onetime largest employer has for many years been on the decline, a shell of its former self. In its heyday, Kodak had more than 60,000 people on its Rochester payroll. The company employs less than one-tenth that amount here now. And company stock for at least the last three years has languished at less than $10 a share. Until last Tuesday.

When Kodak and the U.S. International Development Finance Corp. (DFC) on July 28 announced details of the loan, Kodak shares soared from a July 27 close at $2.62 to more than $16. By Wednesday morning, shares had reached $43.45. Share price has since backed off to the $15 to $17 range due to a dilution of shares.

But on Aug. 4, The Wall Street Journal reported that the U.S. Securities and Exchange Commission is investigating the circumstances surrounding the loan. Congressional leaders also are looking into both the loan and the substantial number of shares picked up by company leaders ahead of the announcement, according to a letter sent to Kodak Executive Chairman James Continenza.

Continenza was issued 1.75 million stock options by the board the day before the loan announcement.

SEC filings show that Continenza purchased 46,700 additional shares of Kodak stock, while board member Philippe Katz purchased 5,000 shares on the same day. In an interview with CNBC following the announcement, Continenza said Kodak had been working on the loan deal for a “few months” prior to the July 28 announcement, according to the congressional letter, which was signed by James Clyburn, chairman of the select subcommittee on the coronavirus crisis; Carolyn Maloney, chairwoman of the committee on oversight and reform; and Maxine Waters, chairwoman of the committee on financial services.

“During the period when Kodak was reportedly engaged in confidential negotiations for the loan award, the company also awarded stock options to you and members of Kodak’s board of directors that are now worth millions of dollars,” the letter states. “On May 20, the company awarded 240,000 stock options to board members, which were reportedly worth approximately $4 million as of July 31.”

The lawmakers are requesting a number of documents and information from Continenza by Aug. 18 including:

• All documents and communications related to DFC’s loan to Kodak, including but not limited to documents and communications regarding:
o Kodak’s interest in obtaining a loan or entering into any agreement with the federal government to manufacture pharmaceutical ingredients;
o discussions or negotiations with DFC, the Department of Defense (DoD), the White House or any other federal agency;
o Kodak’s ability to manufacture or procure pharmaceutical ingredients;
o any solicitation or request for proposals;
o any offer, bid or proposal from your company;
o any possible commitment made by any pharmaceutical company to purchase active pharmaceutical ingredients from Kodak;
o all loan documents;
o any performance contracts associated with the loan; and
o any agreements with subcontractors, vendors, or other third-party sellers and manufacturers.
• All documents and communications related to the issuance of Kodak stock, options, or other securities to any Kodak officer or director, including but not limited to the award of options to members of Kodak’s board of directors on May 20, 2020 and to Continenza on July 27, 2020.
• All documents and communications related to the purchase or exercise of Kodak stock, options, or other securities by any Kodak officer or director, including but not limited to the share purchases by Continenza and Katz on June 23, 2020.
• A list of all meetings or phone conferences with any federal employee, official, agent, representative, or volunteer, including but not limited to any White House, DOD, or DFC employee, regarding the topics described in this letter.

And at least half a dozen law firms have said they are investigating claims against Rochester’s photo giant.

“My suspicion is it’s likely when the dust settles from the Securities and Exchange Commission looking into the matter that they will find that Kodak’s senior execs followed all the rules,” said George Conboy, chairman of Brighton Securities Corp. “I don’t have any evidence for that contention. It’s just that it is such an obvious large purchase immediately prior to a major positive event, and unless Kodak’s senior people are really stupid, they’re not going to buy unless it’s part of a disclosed regular program of purchases.”

Conboy expects the SEC to discover that Continenza’s June purchase of shares is part of a planned series of purchases and complies with all applicable securities regulations. The 1.75 million shares that were granted last week, however, is a little more curious, he said.

“Management has said that he was approved for the options a little over a year ago when they made a borrowing deal with some private equity firms that lent (Kodak) a bunch of money, and because that loan deal involved convertible debt — meaning the lenders could convert some or all of their loan to stock, which we found out a few days ago that they elected to do — the board says that they granted the CEO these options so that his existing position in the shares would not get diluted,” Conboy explained.

That, he said, was unconventional.

“It is not conventional for a board of directors to save senior management from dilution due to capital transactions. And while that’s a little curious, it’s a lot more curious why that grant finally took place Monday morning prior to the press conference,” Conboy said. “If I had to suspect, I would suspect that they said holy smokes, are we going to get around to doing this grant? We better do it. So they did it.”

Conboy also noted that everyone pointing their fingers at management for cashing in on Tuesday’s announcement could have bought the stock themselves at $2 or $3 a share in the last couple of years.

“Further, if statements from the company are correct, and I have no reason to disbelieve them, Continenza has never sold any stock, and some of the early share grants are still under water because people should remember that when Kodak came out of bankruptcy back in 2013, the shares were in the mid $20 (range),” he noted.

The DFC said in its statement last Tuesday that terms of the loan were still being worked out and that Kodak could receive all or a portion of the $765 million. And even if the company gets the full amount and is able to convert its manufacturing facility rather quickly, can they sell the generic drugs at a profit, Conboy wondered.

“How about the idea that China sells this stuff now?” Conboy said. “Kodak may have a higher cost than a Chinese company. So how does Kodak compete profitably? What we don’t know: Are the feds planning to offer some kind of tax break to pharma companies that source their stuff domestically? It might make sense.”

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Kodak to begin making generic drugs; stock price triples

Eastman Kodak Co. shares (NYSE: KODK) tripled Tuesday on news that the photo giant will receive a $765 million loan from the U.S. International Development Finance Corp. to begin producing pharmaceuticals. Kodak stock closed at nearly $8 Tuesday, up from Monday’s close of $2.62 a share.

At the direction of President Trump, DFC CEO Adam Boehler will sign a letter of interest today to provide the loan in support of the launch of Kodak Pharmaceuticals, a new arm of the company that will produce critical pharmaceutical components. The project will mark the first use of new authority delegated by Trump’s recent executive order that enables DFC and the U.S. Department of Defense (DOD) to collaborate in support of the domestic response to COVID-19 under the Defense Production Act (DPA).

Signed by Trump on May 14, Executive Order 13922 gives the DFC CEO the authority under the DPA to leverage its financial tools to re-shore production of strategic resources and strengthen related domestic supply chains in response to COVID-19. On Friday, Trump signed four executive orders aimed at limiting drug prices.

“Addressing the unprecedented challenges we face today — and preparing for future crises — requires innovative ideas and partnerships,” Boehler said in a statement. “Today, we are bringing together the significant resources and expertise of the private sector and U.S. government. We are pleased to support Kodak in this bold new venture. Our collaboration with this iconic American company will promote health and safety at home and around the world.”

Kodak Pharmaceuticals will produce critical pharmaceutical components that have been identified as essential but have lapsed into chronic national shortage, as defined by the Food and Drug Administration (FDA). Although Americans consume roughly 40 percent of the world’s supply of bulk components used to produce generic pharmaceutics, only 10 percent of the materials are manufactured in the U.S.

According to various news reports, Kodak Pharmaceuticals will make ingredients for generic drugs, including the antimalarial drug hydroxychloroquine that Trump took, saying it would stave off COVID-19. The FDA on July 1 cautioned against taking the drug for COVID-19 outside hospital settings due to the risk of heart rhythm problems.

Eastman Kodak Co. Executive Chairman Jim Continenza
Eastman Kodak Co. Executive Chairman Jim Continenza

“Kodak is proud to be a part of strengthening America’s self-sufficiency in producing the key pharmaceutical ingredients we need to keep our citizens safe,” said Kodak Executive Chairman Jim Continenza. “By leveraging our vast infrastructure, deep expertise in chemicals manufacturing and heritage of innovation and quality, Kodak will play a critical role in the return of a reliable American pharmaceutical supply chain.”

Continenza told the Wall Street Journal that the government wants to wean the U.S. off its dependence on China and India for generic drugs.

“If we have learned anything from the global pandemic, it is that Americans are dangerously dependent on foreign supply chains for their essential medicines,” said Peter Navarro, assistant to the President and director of the Office of Trade and Manufacturing Policy at the White House. “This DFC-Kodak partnership is a big win for the use of President Trump’s DPA powers, a big win for New York and a huge step forward towards American pharmaceutical independence.”

Local officials celebrated the news Tuesday.

“Our residents created a legacy working at Kodak to provide world-class products and countless memories for people throughout our nation and our world,” said Mayor Lovely Warren. “Now, we will get another opportunity to show the world our ingenuity and quality again through Kodak Pharmaceuticals. I look forward to more Rochesterians going to work and building a new chapter in our shared history.”

Monroe County Executive Adam Bello added: “Today marks a new chapter for Eastman Kodak, which has been a world leader in innovation for over 130 years and has always called Rochester ‘home’. In this time of unprecedented challenge, this opportunity will showcase the best of Monroe County and our ability to quickly adapt to the needs of our new economy, even while responding to the COVID-19 crisis. I am excited to see Kodak leading this forward thinking initiative and am confident that our skilled workforce will make it a success.”

DFC’s loan will accelerate Kodak’s time to market by supporting startup costs needed to repurpose and expand the company’s existing facilities in Rochester and St. Paul, Minn. The company will incorporate continuous manufacturing and advanced technology capabilities. The letter of interest that will be signed in Rochester today indicates Kodak’s successful completion of DFC’s initial screening and will be followed by standard due diligence conducted by the agency before financing is formally committed, officials said.

“This is about assuring our supply chains now and in the future,” said Rear Admiral John Polowczyk, who leads the White House Supply Chain Task Force. “Kodak is stepping up to help onshore pharmaceutical production and this DPA action will allow the modernized Strategic National Stockpile to have domestic resiliency. Once Kodak ramps up we will have the ability to tap into that capacity for domestic use.”

Boehler and Continenza will sign the letter and be joined by Navarro, Polowczyk and Deputy Secretary of Defense David Norquist. The signing ceremony will follow recorded remarks from Trump and New York Gov. Andrew Cuomo.

Once fully operational, Kodak Pharmaceuticals will have the capacity to produce up to 25 percent of active pharmaceutical ingredients used in non-biologic, non-antibacterial generic pharmaceuticals while supporting 360 direct jobs and an additional 1,200 indirectly. The company plans to coordinate closely with the Trump Administration and pharmaceutical manufacturers to identify and prioritize components that are most critical to the American people and U.S. national security.

Similar to a commercial loan, the loan must be repaid over 25 years, Continenza told the Wall Street Journal.

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