Kodak investment 'not a done deal,' says US DFC chief

WASHINGTON — The U.S. International Development Finance Corporation is being investigated for a letter of interest to provide a loan to the Eastman Kodak Company under the Defense Production Act, raising questions about the young agency.

DFC signed a letter of interest to provide a $765 million loan to support the launch of a new arm of Kodak that would produce pharmaceutical components last week.

The deal was done “at the direction of President Donald J. Trump” according to a press release from DFC, and it was the first deal under the development finance institution’s new authority to make domestic loans in response to COVID-19.

The deal is now under investigation by the Securities and Exchange Commission and the U.S. House of Representatives. A group of Democratic committee chairs sent a letter to DFC CEO Adam Boehler, requesting all documents and communications related to the Kodak transaction and between DFC and any “private sector entity” related to financing under the DPA loan program.

When the program was initially announced several months ago, it raised questions in the development community about what it would mean for the young agency and its development mission. Development experts were concerned about whether DFC was best suited to manage the program, that it was outside the purview of the agency and that it might distract from the core mission.

When asked whether this Kodak deal would hurt the agency’s reputation and confirm those concerns, Boehler told Devex: "Look, any time you get into a deal there's always a risk and in this case we signed a letter of intent, it's not a done deal. If there's any issues in the deal then we won't go forward with the deal, just like we would do in any other deal."

There is a risk that the Kodak deal will be a distraction from DFC’s mandate, especially if any wrongdoing is discovered, a development finance expert told Devex.

“I am concerned about the reputation of the DFC because obviously I think it has the chance to be one of — if not the — premier development finance institutions, and if it becomes burdened with the reputation of being part of an insider trading deal or costing taxpayer money, it would be extremely unfortunate,” the expert said.

If the recipient were an international pharmaceutical company, the deal would immediately raise questions about why it was not able to find commercial financing, as most pharmaceutical companies would not need DFC financing. The agency might consider investing in a smaller company that had a technology or a drug that would have an impact in developing countries, the expert said.

Deals where DFIs sign letters of intent fall through “fairly often,” the expert said. DFIs may sign them after doing a preliminary evaluation, and businesses will use those letters to help raise the rest of the financing they need, as they help provide assurance for bankers or investors nervous about investing in developing countries. “It is not unusual for there to be a staged process like that: ‘Here is a letter of intent — if you don’t raise the rest, we throw this in the trash,’” the expert said.

The Center for Global Development published a blog post asking a number of questions on the Kodak deal, including if it meets DFC’s requirement of additionality, which would mean it couldn’t raise the funding elsewhere, how the company was selected, what its impact would be, and whether it would meet fiduciary standards.

“These are key questions we would ask for any development project, but they are also salient in the US context as America’s new development finance institution veers far off its mandate. The stakes are too high for mistakes,” they wrote.

On Twitter, CGS Senior Fellow Scott Morris wrote that: “Crisis exigencies are what they are, but it’s worth noting that this is pretty much doing the opposite of what @DFCgov was set up to do.”

Update, Aug. 6, 2020: This article has been updated with comments from a development finance expert; and has been updated to clarify that the DFC announced a letter of interest, which is what is being investigated.