The benefits to be terminated include medical, dental, life insurance and survivor income benefits, and the proposed date of termination is December 31, 2012. This will relieve the company of $1.2 billion in OPEB liability. The proposed settlement does not impact retiree pension benefits.
Kodak will provide the Official Committee of Retirees 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 committee’s discretion to make payments to retirees to subsidize a limited portion of future benefit costs. Additional information will be provided to retirees once Kodak coverage ends.
The agreement is supported by the debtor’s Official Committee of Unsecured Creditors, and will significantly reduce one of the company’s most substantial legacy liabilities, marking a step towards Kodak’s 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 about $10 million a month. Since filing Chapter 11, Kodak has paid 100% 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. The agreement is subject to approval by the Bankruptcy Court and is scheduled for a hearing on October 29.
In February, the company asked the court’s permission to end health care benefits for approximately 16,000 Medicare-eligible retirees (see “Kodak Asks to Drop Benefits for Medicare-Eligible Retirees”). The company is facing an employee lawsuit about the bankruptcy and its effect on the company’s retirement plans.