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Kodak holders convert bonds into shares. Here’s what that means.

The 30 million shares that convertible bond holders owe are worth approximately $ 600 million, far more than the $ 100 million face value of the convertible bonds.

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Eastman Kodak announced this on Monday convertible bondholders convert their property in regular stock. That means a dilution of the shares for existing shareholders and the shares fell again. The bonds have been out for years, so some shareholders may have expected the news.

Kodak (ticker: KODK) does not receive any money from the conversion and issues new shares, so that existing shareholders ultimately own less of the company after the process is complete. Still, there are positives because the debt conversion wipes out some obligations.

The big downside is of course that there is more stock. The company will issue approximately 30 million ordinary shares to convertible bond holders. The shares would be issued Monday. After conversion, Kodak has approximately 75 million shares outstanding, up from approximately 44 million before the transaction.

A convertible bond is exactly as it sounds, a bond that pays interest but can be converted into a predetermined number of shares. The conversion function is as an option. It has some value, so companies can often pay less interest on a convertible bond compared to a conventional bond offering.

The 30 million shares that convertible bond holders owe are worth approximately $ 600 million, far more than the $ 100 million face value of the convertible bonds. It is a stroke of luck for bondholders.

Long have been holders of Kodak shares doing wellalso. Kodak shares have gone wild lately, pushing shares up about 280% so far, much better than comparable returns from the S&P 500 and Dow Jones Industrial Average over the same period. Shares peaked at $ 60 earlier on July 29 relapse to about $ 22 Friday afternoon.

A surprising announcement that the company has one Loan of $ 765 million government to make ingredients for generic drugs in the US was the catalyst for the stock rally. The loan was granted on the basis of the recently invoked Defense Production Act.

Kodak’s stock fell nearly 19% to $ 17.65 on Monday morning. Investors can expect stocks to have another volatile week as former convertible bond holders decide whether to hold or sell their new Kodak shares.

Write to Al Root at allen.root@dowjones.com

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