Eastman Kodak Company announced that, following extensive negotiations, it has reached an agreement in principle with the Official Committee of Retirees (the 1114 Committee) that provides for a comprehensive resolution of Kodak’s retiree health care and survivor benefits liabilities.
The company’s retiree benefits program includes medical, dental, life insurance and survivor income benefits, collectively referenced as Other Post-Employment Benefits or OPEB. Under the proposed agreement, the company will terminate these benefits as of December 31, 2012.
In satisfaction of the company’s $1.2 billion OPEB liability, Kodak will provide the 1114 Committee with a $7.5 million cash payment to support initial administration and benefit obligations, a $635 million unsecured claim, and a $15 million allowed administrative claim that would have priority status in Kodak’s reorganization proceedings. These funds can be used at the 1114 Committee’s discretion to make payments to retirees to subsidize a limited portion of future benefit costs. Additional information will be provided to retirees in coming weeks about their options once Kodak coverage ends.
The agreement has the support of the debtor’s Official Committee of Unsecured Creditors, and will significantly reduce one of the company’s most substantial legacy liabilities, marking another major step toward Kodak’s successful emergence from Chapter 11.
As of December 31, 2011, the company’s aggregate U.S. OPEB liability exceeded $1.2 billion. OPEB coverage currently costs the company approximately $10 million per month. Since filing for Chapter 11 and while seeking a negotiated solution with the 1114 Committee, the company has paid 100 percent of its share of the costs for these benefits, resulting in cash expenditures in excess of $90 million.
The company said that the proposed agreement results in significant cost savings and liquidity enhancement and eliminates the need for costly and lengthy litigation. Ultimately, through the allowed claims process, the retirees’ recovery is linked to Kodak’s successful reorganization.
Kodak and Official Committee of Retirees Agree on Modification of U.S. Retiree Health Care and Kodak noted that it recognizes this action will pose challenges for retirees. This agreement is one of the many necessary steps to put the company on a path to emerge as a profitable, sustainable company.
The agreement is subject to approval by the Bankruptcy Court and is scheduled to be heard at a hearing on October 29, 2012.