The Trump administration's decision to entrust USD$765 million of taxpayer money to Eastman Kodak has raised several questions about the financial vetting of the inkjet printer and plate company, amid an investigation into potential insider trading.
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| Kodak's share roller-coaster following the announcement made billions for certain people |
The equivalent of AUD$1 billion injection, was touted by the US President who said that Kodak would lead U.S. efforts to bring pharmaceutical manufacturing back to the United States.
"I don't want to see a once-prestigious American brand go bankrupt. I love the idea that companies can continue; they can shift into new spaces," a congressional aide said. " If there's a clear or helpful way of doing that here, I'm open-minded about it. ... but why is Kodak the right company?"
The anticipated loan, if completed, is being made by a little-known government agency called the U.S. International Development Finance Corp., or DFC, which provides loans in foreign countries. The president tapped the obscure agency to work on the job of figuring out how to spur U.S. production of medical supplies.
"I really do hope that that analysis has been thorough because many questions will arise like, you know, why wasn't Kodak raising this money from the public market? It's a publicly traded company," said a former DFC finacing executive.
Trump said Kodak may have lost its way but would now be part of efforts to fulfill an "America First" priority of bringing back manufacturing to the United States and decoupling the nation's drug supply that's wrapped up in China.
"It's a great name, when you think of it," Trump said when making the announcement last month. "Such a great name. It was one of the great brands in the world."
But the DFC has now put the deal on hold after the Securities and Exchange Commission launched an investigation into potential insider trading after a massive amount of Kodak shares traded hands the day before the loan's announcement.
Potential insider trading?
"You see all of this trading take place, and you see board members and other associates making billions of dollars of a transaction," said Democratic congressman James Clyburn.
Six days ago the DFC tweeted: "Recent allegations of wrongdoing raise serious concerns. We will not proceed any further unless these allegations are cleared." It is believed these allegations include purchases of shares and share options on the day before the announcement was made, by senior Eastman Koday executives.
Kodak has launched its own independent review of the actions but expressed confidence that talks with the administration will continue.
"The Company appreciates and supports the DFC's decision to await clarification before moving forward with the process," said Arielle Patrick, a spokeswoman for Kodak.
But some financial analysts question whether Kodak has the financial prowess to do this successfully.
George Conboy, a financial analyst based in Kodak's hometown of Rochester, N.Y., said Kodak could never convince a bank to loan the company anything close to what the government was considering. He points to a smaller, $100 million loan Kodak secured last year from a private equity group at a higher interest rate – that also involved giving up a large stake in the company.
"You would not borrow money on those terms unless you couldn't get someone else to lend it to you more attractively," said Conboy, chairman of Brighton Securities. "You don't go to the loan shark if you can borrow on your home-equity loan."
A senior U.S. government official noted it was not a loan yet, just a letter of interest. Officials said while Kodak has passed an initial screening process, including site visits and an interagency review, the government is only now beginning the more rigorous vetting process.
That process involves the DFC contracting with outside lawyers and accountants to dig deeper into the company's financials — a process that could take at least a couple of months.
Our thanks and acknowledgement to www.npr.org for portions of content in this article
