EASTMAN Kodak is contemplating a move to unlock gains created by its overfunded pension system, according to sources with knowledge of the matter.
The company is weighing a so-called pension reversion, which would enable it to take control of the surplus rather than leaving excess capital to current and future retirees, said the sources, all of whom requested anonymity to discuss confidential information. The manoeuvre would involve selling its portfolio of illiquid investments while liquidating other positions, the sources said.
Proceeds may be used for corporate purposes such as paying down debt and investing in growth initiatives, according to the sources. No final decision has been made.
Shares of the company surged, closing 53 per cent higher at US$5.34, after Bloomberg News reported the potential plan, the biggest jump in more than three years. They extended those gains in after-hours trading.
Pension sponsors can typically end a plan and take control of the excess assets if the plans’ documents allow it. But the United States may impose punitive taxes on such moves unless the company uses some of the excess to set up a replacement plan or increase benefits, according to Milliman, an actuarial company.
A spokesperson for the Rochester, New York-based company did not immediately respond to requests for comment.
Kodak was once the leader in the photography and film industry, then was overtaken by the shift to digital. The company now focuses on manufacturing advanced materials and chemicals.
The company’s pension plans have benefited from strong performance. They generated US$1.1 billion of returns in the three years to 2022, roughly double the US$541 million that was expected. The largest US plan had almost three-quarters of its assets in private equity and hedge funds.
The overfunded status soared to about US$1.2 billion at the end of 2022, or more than four times Kodak’s market capitalisation through Wednesday’s (Feb 28) close. The company is disbanding an internal team that manages the plan’s assets, transferring oversight to NEPC, Bloomberg News reported this week. It has sent liquidation requests to investment managers including Arrowstreet and Bridgewater Associates, a source with knowledge of the matter said.
Kodak was invested in Bridgewater Pure Alpha Fund II and Arrowstreet Capital Global Equity Long/Short Fund as at Dec 31, 2022, according to a filing. A representative for Arrowstreet did not immediately respond to a request for comment, and one for Bridgewater had no immediate comment. BLOOMBERG
