Is the situation really that bad ?
Gun maker Colt Defense LLC said late Sunday it is filing for chapter 11 bankruptcy-court protection, amid business-execution issues and a heavy debt burden.
The company has secured $20 million in financing from its existing senior lenders to continue operating while in bankruptcy and expects to remain in business after the restructuring.
The West Hartford, Conn., company, with a legacy dating to 19th century New England, developed a pistol it calls “the gun that won the West” and enjoyed a lucrative stretch in the late 1990s and early 2000s as supplier to the U.S. military of the M4 line of firearms widely used by front-line troops.
But Colt has struggled in recent years with supply-chain and working capital issues, a slowdown in rifle sales and its 2013 loss of a key contract to supply the U.S. Army with the M4. As a result of some of its operational issues, the company has had accounting problems that caused it to revise prior years’ reported financial results and miss a creditor’s initial filing deadline for an annual report, according to regulatory filings.
Colt plans to try to reduce its $355 million debt burden via a court-supervised auction of its business, to generate proceeds to repay some of its lenders.
Colt has selected its private-equity backer, Sciens Management LLC, as the “stalking horse”—or lead bidder—in the sale.
As its cash dwindled, Colt spent much of the past year seeking financing and angling for better terms and restructuring-plan support from creditors.
It tried to win bondholders’ backing for a debt-for-debt exchange or a “prepackaged bankruptcy” filing that could have smoothed its trip through chapter 11. But bondholders balked at the deals, either of which would have slashed the amount the company owed them. As of June 1, just 5.9% of bondholders had registered their support for Colt’s proposal, according to the company.
Colt borrowed $70 million from Morgan Stanley last year to pay interest on its bonds, and in February it warned it might not have enough cash to make an interest payment by a June 15 deadline. This year it struck a $33 million refinancing deal with hedge fund Marblegate Asset Management LLC that also freed up some additional liquidity, according to filings.
Ultimately, it failed to turn its performance around or negotiate a deal with all its creditors before Monday’s payment deadline, people familiar with the matter said, setting up a default.
Colt’s Bankruptcy Affects Large Retail Bondholder Base. Among those staked to Colt Defense’s chapter 11 restructuring are the company’s “mom and pop” bondholders, who number about 2,700, Colt’s chief restructuring officer says in a bankruptcy filing. He thinks fewer than 50 institutional investors own the company’s bonds--though they hold three-fourths of the dollar value of the bond debt. Well-known, iconic companies often attract outsized interest from retail investors, market participants say. The divide in dealing with retail holders and sophisticated institutional investors working with legal and banking advisers complicated Colt’s efforts to cut a deal with bondholders ahead of the filing, its CRO says. (email@example.com)