Kodak Continues to Tank on Financing News

ROCHESTER, N.Y.(TheStreet) -- Eastman Kodak (EK Quote) is adding even more financing, and shares continued to tank Friday morning, falling 5% to $5.62.

The company priced a private placement of $400 million worth of convertible senior notes due 2017 to qualified institutional buyers -- expanding upon the $300 million sale it announced earlier this week.

The sale is expected to close on Sept. 23.

On Wednesday, when the company announced that private-equity fund Kohlberg Kravis Roberts committed to purchase up to $400 million in senior secured notes due in 2017 in exchange for two seats on Kodak's board of directors, shares tumbled 7% to $6.20.

Kodak also agreed to issue KKR warrants to purchase up to 53 million Kodak common shares.

The company intends to use proceeds from both debt sales to buy back up to $575 million worth of its 3.375% convertible notes due 2033.

"You're talking KKR getting 20% of the company, and the convert is probably going to be somewhere between another 10 to 15%," said analyst Shannon Cross of Cross Research in Livingston, N.J. "So you diluted the shareholders 35%, maybe as much as 40%. That's really what's pressuring the stock, plus there's a lot of people likely sort of hedging their positions right now."

Investors had worried about Kodak's ability to fund the buyback without depleting cash reserves, noting the convertible bonds' owners have the right to sell them back to Kodak as early as October 2010.

"They pushed out their potential bankruptcy date by a period of time by refinancing," Cross said. "It's a good thing but, again, it shows how shaky their position is because they had to give up so much of their company to do that."