PDA

View Full Version : Colt on the Brink of Bankruptcy



UWone77
16 November 2014, 07:33
From the Wall Street Journal (http://online.wsj.com/articles/gun-manufacturer-colt-warns-of-possible-default-1415892942):



Colt Defense LLC warned that it could default by the end of the year, as the privately owned company, which has suffered from declining demand for rifles and handguns, is likely to miss a payment to bondholders.

The gun maker faces a $10.9 million payment to bondholders Nov. 17, according to a filing on Wednesday with the U.S. Securities and Exchange Commission. If Colt skips the payment, it will enter a 30-day grace period, but without payment by Dec. 15 it will be in default and bondholders can demand immediate, full payment.

Colt, which is controlled by investment firm Sciens Capital Management LLC, had $248.8 million outstanding on the bonds as of June 29. The bonds were trading in the mid-30 cents on the dollar—deep in distressed territory—on Thursday.

alamo5000
16 November 2014, 07:52
I come from a finance background as a profession. I've done all types of stuff.

In the case of Colt I am sure their brand name will live on forever, but more than one gun company is the pawn of private equity/alternative asset management companies. Colt has too good of a name brand, and too much name recognition to simply go away. Building up that kind of name is more valuable than most other things.

But generally when you get private equity folks calling the shots sometimes interests are not aligned properly. Say for example if you had a brilliant gun guy with some stellar cutting edge industry ideas who has his finger on the pulse of things.... his investors can tell him 'no you can't do that'... these asset management companies often chase after 'proven' money...but often by doing so they get behind the curve on a lot of things in a lot of industries, and it's not just guns.

There could be any number of things going wrong... and without getting more information it's impossible to say. But what I see is many of the Colt rifles I've seen, while good are trying to compete in a crowded space of 'general use' off the shelf 'marketed in wal mart' kind of guns... there is a market there definitely... but I think (just an opinion) that real gun folks are opting for more customization. Kind of like your in the can Budweiser vs your craft beer.

It also could be that they do that, and that they tooled up for the big Obama gun sale but now... it looks less and less like that is going on...I don't know any gun sales numbers... but that could also be having an effect.

Who knows. I certainly do not have all or any of the info... I can only speculate as I have.

alamo5000
16 November 2014, 08:12
Also the fact that who they are owned by and the fact that they have bond holders tells me a whole lot about things... I'd make a 90% bet on it.

Thompson
16 November 2014, 08:33
Saw that article too last night. It seems like most of the big companies are hurting. Wonder what the fiscal year has been like for some of the smaller, 'tactical', specifically-tailored companies are doing (ie: Geissele, Parallax Tactical, Lantac, etc).


But generally when you get private equity folks calling the shots sometimes interests are not aligned properly. Say for example if you had a brilliant gun guy with some stellar cutting edge industry ideas who has his finger on the pulse of things.... his investors can tell him 'no you can't do that'... these asset management companies often chase after 'proven' money...but often by doing so they get behind the curve on a lot of things in a lot of industries, and it's not just guns.

There could be any number of things going wrong... and without getting more information it's impossible to say. But what I see is many of the Colt rifles I've seen, while good are trying to compete in a crowded space of 'general use' off the shelf 'marketed in wal mart' kind of guns... there is a market there definitely... but I think (just an opinion) that real gun folks are opting for more customization. Kind of like your in the can Budweiser vs your craft beer.
Haha - that sounds like Congress and our DoD budget.

Although I'll agree with you that "real gun folks" or enthusiasts (as I would call them), and I'm just speculating also, but I feel like those folks that are into the $500 AR's outnumber us.

I don't know much about finances/business, but I wonder if Colt does default, if Freedom Group might make a move.

Also, here's another article in case you can't read the full WSJ article: Colt warns of possible default, likely to miss $10.9 million payment (http://www.guns.com/2014/11/15/colt-warns-of-possible-default-likely-to-miss-10-9-million-payment/)

alamo5000
16 November 2014, 11:47
Saw that article too last night. It seems like most of the big companies are hurting. Wonder what the fiscal year has been like for some of the smaller, 'tactical', specifically-tailored companies are doing (ie: Geissele, Parallax Tactical, Lantac, etc).


I think you've hit the nail on the head with your question.

What has most likely happened here (as has happened with many many other companies, firearm and non firearm related alike) is a leveraged buyout. It's pretty basic on the concept of it... but in this case a private equity group, in this case "Sciens Capital Management LLC" approached Colt or whoever was in control of Colt at the time and offered to do a buy out at a very attractive price. Say like the price +10%...

Those guys might not even know hardly anything about the direction of the industry.... they just need a company and a brand with scale able production and income... so then the private equity group puts together a deal...say they put up 10% of their own money on it and the rest they raise from (in this case) most likely bond holders. What it amounts to is those bonds eventually will get paid off over time as long as the underlying company keeps making enough profit to cover the bond payments.

It's like having a mortgage on a house, but only it's on a company. And if they set this deal for say a 10 year time span, they put down 10% borrow the rest, and in 10 years they own the company outright.

So if they put up $50 million dollars, and bought the company for $500 million with it ($450 million in borrowed funds)... in 10 years they are free and clear and have made a literal 10 times their initial investment over that time frame AND they still have not counted for asset appreciation. (Say the company is now worth $750 million instead of $500 million)...and then if they keep it they own it outright and get to keep the money after that as perpetual interest.

And these 'asset managers' might have 10 companies at once doing the exact same thing where they mortgage them out and so on and so forth.

I am not privy to firearms sales numbers or any of that...but I would say the 'scare market' is pretty much over for now. It very well might be that the $600 AR market is massive, but if you are talking about making money... if you make a $750 AR15 and make $50 on the whole thing (wholesale)...

Now if you take the parts... say like the companies you mentioned... trigger companies, rail companies, accessories.... if they make $10 on the trigger, $20 on the rail, $15 on accessories...by the time you put together a whole AR my bet is those companies are all making more percentage wise...

I would be willing to bet that the companies you mentioned are doing just fine. They might not be getting rich but they are doing ok.

But back again to the whole Colt thing... there probably isn't a silver bullet answer to the problem...but obviously something has to change... but one problem with investment firms like that...as soon as they take control the real talent hits the doors. This is true in many many industries. In many cases the politics of it all hurts a lot of innovation and the company is treated more like it's an investment instead of a lifestyle. Basically accountants take over and then problems arise....usually over time... some management companies are better about keeping the talent happy than others... but obviously something is not going according to plan at Colt.

UWone77
16 November 2014, 13:31
I knew Colt was in trouble, when they started catering a little more to the civilian consumer. Different AR models, selling uppers, ect signaled to me that they needed to raise cash.

Colt would be wise to start selling more individual AR parts at reasonable prices. I think they would fill a huge void for those looking for small parts. Like many others I'd love to see them bringing back wheel guns. Not sure that this will solve their 11 million dollar payment plan.... but they've ignored the civilian market too long.

alamo5000
16 November 2014, 13:44
I knew Colt was in trouble, when they started catering a little more to the civilian consumer. Different AR models, selling uppers, ect signaled to me that they needed to raise cash.

Colt would be wise to start selling more individual AR parts at reasonable prices. I think they would fill a huge void for those looking for small parts. Like many others I'd love to see them bringing back wheel guns. Not sure that this will solve their 11 million dollar payment plan.... but they've ignored the civilian market too long.


Talk to Doug in accounting. He's the one who gets to make these kinds of decisions.

http://i.ytimg.com/vi/h7P4ZAhIPkM/hqdefault.jpg

UWone77
16 November 2014, 13:45
Talk to Doug in accounting. He's the one who gets to make these kinds of decisions.

LOL... Right.

alamo5000
16 November 2014, 13:49
LOL... Right.


You think it's far fetched but I'm telling you the truth... the people with entrepreneurial minds often cannot survive the world of take overs and private equity. It's not just guns... its a lot of things.

These organizations turn diamonds into rocks all the time.

UWone77
16 November 2014, 13:52
You think it's far fetched but I'm telling you the truth... the people with entrepreneurial minds often cannot survive the world of take overs and private equity. It's not just guns... its a lot of things.

These organizations turn diamonds into rocks all the time.

Maybe Colt can go on Shark Tank and ask Mr. Wonderful for an investment.... He can steer them to make Colt Wheel Guns again or have them license it. [:D]

Thompson
16 November 2014, 13:59
I knew Colt was in trouble, when they started catering a little more to the civilian consumer. Different AR models, selling uppers, ect signaled to me that they needed to raise cash.

Colt would be wise to start selling more individual AR parts at reasonable prices. I think they would fill a huge void for those looking for small parts. Like many others I'd love to see them bringing back wheel guns. Not sure that this will solve their 11 million dollar payment plan.... but they've ignored the civilian market too long.
Probably isn't helping them none since they don't have the M-4 contract with the Army either.


That'd be neat to see them go back that direction. I think that might be a nice refresher in the world filled with AR's, Glocks, Sig Sauers, and Springfields.

alamo5000
16 November 2014, 14:12
Maybe Colt can go on Shark Tank and ask Mr. Wonderful for an investment.... He can steer them to make Colt Wheel Guns again or have them license it. [:D]

They've already been into the shark tank and that's how they got to where they are. Mr Wonderful only cares about cash and getting his house in the Hamptons.

UWone77
23 November 2014, 09:09
For those that missed it, Looks like Colt got an 11th hour reprieve.

Press Release:



WEST HARTFORD, Conn. — Colt Defense LLC (the “Company”) announced today that it has entered into a new $70 million senior secured term loan facility with Morgan Stanley Senior Funding Inc. (the “MS Facility”). Proceeds from the MS Facility will be used to repay all amounts outstanding under the Company’s existing term loan agreement dated as of July 12, 2013 and provide additional liquidity, including to allow the Company to make the $10.9 million interest payment due November 17, 2014 under the indenture governing its existing senior notes. The credit agreement governing the MS Facility (i) does not contain financial covenants or amortization provisions similar to those provisions in the Company’s existing term loan agreement; (ii) provides for the accrual of interest on an 8% cash and 2% payment-in-kind basis; and (iii) will mature no later than August 15, 2018 subject to the satisfaction of certain conditions. The lenders under the Company’s existing credit agreement dated as of September 29, 2011 (the “ABL Credit Agreement”) have also agreed to amendments to the ABL Credit Agreement necessary for the Company to enter into the MS Facility. The Company believes that the MS Facility will provide it with the time and flexibility necessary to support its medium and long term objectives.
About Colt Defense LLC

Colt is one of the world’s oldest and most renowned designers, developers and manufacturers of firearms for military, personal defense and recreational purposes. Our founder, Samuel Colt, patented the first commercially successful revolving cylinder firearm in 1836 and, in 1847, began supplying U.S. and international military customers with firearms that have set the standards of their era. The “Colt” name and trademarks stand for quality, reliability, accuracy and the assurance of customer satisfaction. Our brand and global footprint position us for long-term growth in a world market that offers continued opportunities in all of our sales channels: military, law enforcement and commercial. We operate from facilities located in West Hartford, Connecticut and Kitchener, Ontario, Canada. More information on Colt Defense LLC is available at www.colt.com and www.coltcanada.com.


Contact
Colt Defense LLC
Sheri Miller
1-860-236-6311 x1505