Earlier this morning, Kodak filed for chapter 11 bankruptcy protection in the Southern District of New York. At the time of the filing, it had more than 100,000 creditors, with debts totaling $6.75 billion. As I had reported earlier, the company had been facing serious financial problems, and had been attempting to stave off bankruptcy by selling off some of its patents. In addition, it has closed 13 manufacturing plants and 130 processing labs, and reduced our workforce by 47,000 since 2003. Even then, it has only had one full year of profits since 2004. This company, a good example of one that has fallen behind due to advances in technology like Blockbuster Video and Borders Books, must now hope that bankruptcy allows them to reinvent themselves and emerge profitable.
The reorganization is off to a good start with Citigroup providing $950 million in financing to allow the company to keep going. The thing to bear in mind here is that, unlike a chapter 7 liquidation, the goal of a chapter 11 is to revitalize a business and allow it to emerge as a viable, financially secure, entity. As such, Kodak plans to continue operating normally during bankruptcy.
There are many tools available to Kodak in chapter 11, including the ability to modify existing contracts and agreements. This is good because one of the other financial problems plaguing the company is hundreds of millions of dollars in pension obligations. The company has said that it contributed about $245 million to its U.S. pension obligations last year, and that it has been unable to shrink those liabilities to a more manageable level. Bankruptcy could also allow Kodak to shed some of this.
Individuals looking at bankruptcy should take some comfort in this news. Just as businesses can use chapter 11 to rebuild and reinvent themselves, so should consumers do so through a chapter 13 filing. In these tough economic times, the stigma of bankruptcy has lessened for businesses (although Kodak’s stock plunged 35% at the start of trading this morning) who are finding much needed relief in bankruptcy. Thus, what’s good enough for Kodak is good enough for you if you need a better way to pay your creditors and get a fresh start.