Joel R. Glucksman
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Legendary Gunmaker Pulls the Trigger on Ch. 11 Bankruptcy Protection
Author: Joel R. Glucksman
Date: July 17, 2015
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Colt Defense LLC, a legendary gunmaker and one of the oldest gunmakers in the world, filed for Chapter 11 bankruptcy protection recently to cut its $500 million debt, according to Bloomberg Business.
The filing comes after Colt lost key U.S. and foreign military contracts as well as years of dropping demand for firearms at the consumer level.
Colt accumulates massive debt
As of June 14th, the famed firearms manufacturer announced the filing after failing to strike a deal with its senior bondholders to restructure its debt agreement. The Wall Street Journal reported that the company listed $500 million in assets and more than $500 million in debt, including $100 million in senior secured debt and $250 million bond liabilities.
According to firearms industry expert, Jim Shepherd, the negotiations failed due to a gap between the Colt’s ownership, its institutional investors and the company’s 2,700 smaller bondholders. The result could be that the federal bankruptcy court will propose a quick sale of the company by selecting its debtor and establishing sales conditions.
The fallout of the filing is that Colt will now look to auction the company for sale by August 3rd. As part of the terms, private equity backer, Sciens Capital, has agreed to purchase a majority stake of the company’s assets and secured liabilities. However, Colt officials stated that if the bankruptcy process runs past the August 3rd date, the company may be forced to liquidate assets.
Private equity drives Colt into debt
Bloomberg noted that Sciens Capital, the controlling owner of Colt, has led the company into debt. By putting Colt through the private equity leverage squeeze, Sciens Capital and the company’s other private equity owners have accumulated debt and taken cash out of the company. As a result, Colt’s been placed in a vulnerable position at a time of instability in the firearms market as company sales dropped 30 percent to only $11 million in 2014.
Obama surge
As the company bet heavily on military defense contracts, Colt missed the opportunity to become a market disrupter on the consumer side in 2010. The so-called “Obama surge” was the direct result of rumored bans on civilian firearms, leading to rapid short-term growth. Therefore, without gaining further entry into the semiautomatic and handgun consumer market, Colt maintained its military contracts, which have now all been delayed or terminated.
The future of Colt
Forbes reported that Colt will maintain current operations at its Connecticut facility and fulfill its obligations to employees, suppliers and vendors for now. However, the company’s operations are predicated on a $20 million bond agreement with secured lenders within 60-90 days. At which point, failure to reach this agreement will leave the company with an uncertain financial future.
Ultimately, without a quick sale or a pivot of company focus into the consumer firearms market, Colt will be unable to reorganize its balance sheet and payout their debt obligations.
Are you a creditor in a bankruptcy? Have you been sued by a bankrupt? If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.
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Legendary Gunmaker Pulls the Trigger on Ch. 11 Bankruptcy Protection
Author: Joel R. Glucksman
Colt Defense LLC, a legendary gunmaker and one of the oldest gunmakers in the world, filed for Chapter 11 bankruptcy protection recently to cut its $500 million debt, according to Bloomberg Business.
The filing comes after Colt lost key U.S. and foreign military contracts as well as years of dropping demand for firearms at the consumer level.
Colt accumulates massive debt
As of June 14th, the famed firearms manufacturer announced the filing after failing to strike a deal with its senior bondholders to restructure its debt agreement. The Wall Street Journal reported that the company listed $500 million in assets and more than $500 million in debt, including $100 million in senior secured debt and $250 million bond liabilities.
According to firearms industry expert, Jim Shepherd, the negotiations failed due to a gap between the Colt’s ownership, its institutional investors and the company’s 2,700 smaller bondholders. The result could be that the federal bankruptcy court will propose a quick sale of the company by selecting its debtor and establishing sales conditions.
The fallout of the filing is that Colt will now look to auction the company for sale by August 3rd. As part of the terms, private equity backer, Sciens Capital, has agreed to purchase a majority stake of the company’s assets and secured liabilities. However, Colt officials stated that if the bankruptcy process runs past the August 3rd date, the company may be forced to liquidate assets.
Private equity drives Colt into debt
Bloomberg noted that Sciens Capital, the controlling owner of Colt, has led the company into debt. By putting Colt through the private equity leverage squeeze, Sciens Capital and the company’s other private equity owners have accumulated debt and taken cash out of the company. As a result, Colt’s been placed in a vulnerable position at a time of instability in the firearms market as company sales dropped 30 percent to only $11 million in 2014.
Obama surge
As the company bet heavily on military defense contracts, Colt missed the opportunity to become a market disrupter on the consumer side in 2010. The so-called “Obama surge” was the direct result of rumored bans on civilian firearms, leading to rapid short-term growth. Therefore, without gaining further entry into the semiautomatic and handgun consumer market, Colt maintained its military contracts, which have now all been delayed or terminated.
The future of Colt
Forbes reported that Colt will maintain current operations at its Connecticut facility and fulfill its obligations to employees, suppliers and vendors for now. However, the company’s operations are predicated on a $20 million bond agreement with secured lenders within 60-90 days. At which point, failure to reach this agreement will leave the company with an uncertain financial future.
Ultimately, without a quick sale or a pivot of company focus into the consumer firearms market, Colt will be unable to reorganize its balance sheet and payout their debt obligations.
Are you a creditor in a bankruptcy? Have you been sued by a bankrupt? If you have any questions about your rights, please contact me, Joel Glucksman, at 201-806-3364.