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(Bloomberg) – Eastman Kodak Co. is considering moves to unlock profits generated by its overfunded pension plan, according to people familiar with the matter.
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The company is considering so-called annuity returns, which would allow it to manage surplus capital rather than leaving it to current and future retirees, said the people, who requested anonymity to discuss confidential information. . The operation includes selling a portfolio of illiquid investments and liquidating other positions, the people said.
Kodak said Friday that the company is working with the Pension Plan Committee to “explore the best way to preserve and maximize the value of excess funds for the benefit of key stakeholders, including current and former employees and Kodak stockholders.” He admitted that he was doing it. The company said it cannot guarantee the timing or amount of revenue from these moves.
Proceeds may be used for corporate purposes such as repaying debt or investing in growth initiatives, the people said. No final decision has been made. The company said net proceeds from surplus plan assets will first be used to repay term loan obligations before being utilized for other purposes.
After Bloomberg News reported the potential plan, the company’s stock soared, rising 53% to close at $5.34, its biggest gain in more than three years. As of 10:36 a.m. Friday, shares were down 1% and have risen 36% so far this year.
Pension sponsors typically have the ability to terminate the plan and manage excess assets if permitted by the plan documents. But the U.S. could impose punitive taxes on such moves unless the companies use some of the surplus to create alternative plans or increase benefits, according to actuarial firm Milliman.
Kodak was once a leader in the photography and film industry, but has since been overtaken by the transition to digital. The company is currently focused on manufacturing advanced materials and chemicals.
The company’s pension plan is benefiting from strong performance. It generated $1.1 billion in profit over the three years to 2022, about twice the $541 million expected. The largest U.S. plan had nearly three-quarters of its assets in private equity and hedge funds.
The excess cash position soared to about $1.2 billion by the end of 2022, more than four times Kodak’s market capitalization by Wednesday’s close. The company will disband the internal team that manages the plan’s assets and transfer oversight to NEPC, Bloomberg News reported this week. The company sent liquidation requests to investment managers including Arrow Street and Bridgewater Associates, the people said.
Kodak is invested in the Bridgewater Pure Alpha Fund II and the Arrow Street Capital Global Equity Long/Short Fund as of Dec. 31, 2022, according to filings. Representatives for Arrow Street did not immediately respond to a request for comment, nor did representatives for Bridgewater.
Read more: Kodak disbands team managing $4 billion in pension investments
(Updates with company comment in third paragraph.)
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