Kodak Delayed Its End by Guaranteeing It

Last time we checked in on poor, old Eastman Kodak, the company looked like it was waiting to die. That death has been staved off for at least a little bit, thanks to the $793 million in loans it just raised from bondholders, money that could get Kodak out of bankruptcy. But that loan package comes with a huge stipulation: amongst other things, Kodak has to sell its huge patent portfolio for at least $500 million by next September.

According to the Wall Street Journal, $476 million of that loan bundle is new cash and the rest is “so-called roll-up loans, funds Kodak owed before filing for bankruptcy that will be shifted into the new deal.” Kodak will only have to repay around $200 millon of that before exiting bankruptcy, so if Kodak can sell off some assets and create a reorganization plan that investors are happy with — and assuming the deal is approved by its bankruptcy court — Kodak could use up to $567 million of its new money to emerge from bankruptcy and have another go at being a viable company.

Pleasing investors won’t be easy. Kodak has burned almost a billion dollars during its nearly ten month bankruptcy with little to show for it, and the Journal quotes creditors as saying they’d “lost all faith” in the company’s execs. As I noted previously, those execs have made questionable decisions like selling off the personal imaging side of Kodak, which includes film and photo kiosks, and thus is the most recognizable arm of what Kodak does. That division was also responsible for 28 percent of 2011 revenue. That aside, how can Kodak be Kodak if they quit supporting average photographers?

Which brings me to the most troubling part of Kodak’s new influx of cash. Selling its portfolio of something like 1,100 imaging patents is a huge, huge deal. Kodak has been trying to sell the portfolio for ages, and now the new loans — and Kodak’s solvency — are dependent on getting that portfolio sold. That’s an impending disaster, served two ways.

First, there’s the obvious. Kodak’s patents haven’t sold yet, and they may not, which would kill the new round of funding. Those patents are just getting older by the minute, and Kodak hasn’t been seriously in the camera game for awhile. Judging by the success of Nikon, Canon, and the rest of the flourishing digital camera industry, Kodak’s patents aren’t holding anyone back, and if Kodak had the patent to valuable ideas others were using, you’d imagine it would have already gone to court.

Of course, imaging patents could mean any number of things outside of cameras, including industrial and medicinal applications, and Kodak may be sitting on some super valuable ideas that it simply couldn’t monetize. The fact remains that no one has bought the portfolio yet, despite the company floating it for a while.

But if Kodak is sitting on some valuable, non-camera imaging patents, a sale could still end up horribly. Kodak has already divested most of its personal photography business, which already begs the question of what the company is even going to sell if it leaves bankruptcy. The path for Kodak is murky, but in any case it doesn’t seem to be heading back to cameras any time soon. It does have a healthy commercial imaging arm, so maybe it will end up as the next Kinkos.

Still, that patent sale spells a lot of trouble for the company. I’m guessing that if it holds camera patents, they aren’t worth a whole lot, which means selling the portfolio — and thus saving its loan lifeline — is definitely in question. But if the company has valuable patents and manages to sell them, get funding, and leave bankruptcy, it might not have much to sell anymore, at least not in terms of cutting edge imaging tech. The long and short of it is that, while the announcement of new loans is a ray of hope for Eastman Kodak, Kodak as well all know it doesn’t have much of a future.

Follow Derek Mead on Twitter: @derektmead.