US Gov’t Puts on Hold $765-M Loan to Kodak for New Pharma Division
The US government is putting on hold a $765-million loan to Eastman Kodak Company, which was to be used to launch Kodak Pharmaceuticals, a new arm of the company to produce generic active pharmaceutical ingredients (APIs) in the US, pending a review of allegations of potential misconduct by company officials. The loan had come under increased scrutiny by members of Congress, who requested further information on the loan and the trading activity of the company’s stock by company executives. Kodak said that it is also launching its own internal review of the matter.
The US government, through the US International Development Finance Corporation (DFC), had announced late last month (July 28, 2020) of its plan to sign a letter of interest to provide the $765-million loan, which would be used to support start-up costs needed to repurpose and expand Kodak’s existing facilities in Rochester, New York and St. Paul, Minnesota for pharmaceutical production. The letter of interest by the DFC indicated Kodak’s successful completion of DFC’s initial screening and was to be followed by standard due diligence conducted by the agency before financing was formally committed. The loan was the first use of new authority under a recent executive order signed in May (May 2020) by President Donald Trump that enables the DFC and the US Department of Defense to collaborate in support of the domestic response to COVID-19 under the Defense Production Act; in this case, to support the domestic production of drugs in the US in the government’s response to the COVID-19 pandemic.
In a tweet by the DFC on August 7, 2020, the agency reported that it had put the loan on hold pending further review. “On July 28, we signed a Letter of Interest with Eastman Kodak. Recent allegations of wrongdoing raise serious concerns. We will not proceed any further unless these allegations are cleared,” said the DFC in its tweet.
The loan had come under increased Congressional scrutiny with several members of the US House of Representatives requesting further information. Rep. James E. Clyburn (D-SC), Chairman of the Select Subcommittee on the Coronavirus Crisis, Rep. Maxine Waters (D-CA), Chairwoman of the House Committee on Financial Services, and Rep. Carolyn B. Maloney (D-NY), Chairwoman of the Committee on Oversight and Reform, sent a letter on August 4, 2020 to James Continenza, Executive Chairman of the Eastman Kodak Company, requesting documents and information on the $765-million loan as well as trading activity by company executives before the loan was publicly announced. The Chairs, along with Eliot Engel (D-NY), Chair of the House Foreign Affair Committee, and Al Green (D-TX), Chair of the House Subcommittee on Oversight and Investigations, also sent a letter on August 4, 2020 to Adam Boehler, Chief Executive Officer of the DFC seeking documents related to this loan.
In their letters, the members of Congress called into question the award of the loan to Kodak despite not having a position in pharmaceutical production and the timing of stock activity by company executives while the loan was under confidential negotiations and prior to the public announcement of the loan. Kodak, a print and advanced materials and chemicals company and originally a manufacturer of cameras and films, currently does not have a position in pharmaceuticals. It exited the sector in 1994 after acquiring Sterling Drug, a pharmaceutical company, in 1988 for $5.1 billion, and subsequently selling those assets in separate transactions in 1994: the prescription drug business to Sanofi for $1.7 billion and the over-the-counter-business to SmithKline Beecham (now part of GlaxoSmithKline) for $2.9 billion. Kodak as a company filed for US bankruptcy protection in 2012 facing competitive challenges from digital photography.
Kodak announced late last week (August 7, 2020) that it had appointed a special committee of independent directors of its Board of Directors to oversee an internal review of recent activity by the company and related parties in connection with the announcement of the potential loan by the DFC to support the launch of Kodak Pharmaceuticals. “The Company does not intend to make further public comment on the Committee’s work during the pendency of the review,” said Kodak in an August 7, 2020 statement.