Colt is sick, may default on debt

tfb colt smashed

Over the past year or so, if I had wanted to, I would have made a good amount of coin on the back of Colt’s financial troubles. I have been hounded by US and Canadian financial analysts wanting to pay me to comment on Colt firearms. TFB keeps me busy and so I politely decline.

They don’t say what company they want to discuss with me, not until I sign Non Disclosure Agreements, but I know it is Colt they wish to disuss. They won’t say what they want to know, but I can work out that they want to know if Colt is likely to secure a large military contract that will allow them meet their financial obligations to bond holders. These analysts are eyeing Colt’s high-yield “Junk” bonds (very risky bonds) which have high interests rates in exchange for taking the huge risk of putting good money into a very sick company.

The Wall Street Journal says that Colt may not be able to meet a $10 million payment to bondholders due within the next 30 days. WSJ reports (tip: copy and paste the WSJ url into google, do a search, and then click the first link in the search result, this will allow you to get around the WSJ PayWall) …

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.

Since 2010 Moody’s has been slowly down grading Colt Defense’s credit rating. Anyone holding Colt debt at this point was likely a speculator, not an investor.  They are now rated Caa3

The downgrade was based on statements made by Colt Defense in its November 12, 2014 Form NT 10-Q filing. In the filing the company indicated that it expects to report a decline in net sales for the three month period ended September 28, 2014 versus the same period last year of approximately 25 percent together with a decline in operating income of approximately 50 percent. The company’s statement in the filing that it may not be in compliance with its Term Loan covenants as of December 31, 2014 absent an amendment, waiver or refinancing has also been considered in the ratings. Per the filing, the company is in discussions with existing and potential lenders to address these issues.

What does this mean for consumers and military customers of Colt Defense. Probably not a lot. The company might be restructured, sold as a whole or broken up and sold. Regardless Colt firearms will continue to be manufactured. It is the Colt employees who I am worried about. Inevitably, regardless of what happens, costs will be cut which usually means employees are let go.

Just to be clear: I am no longer consulting. NO exceptions. My focus is on TFB. 



Steve Johnson

Founder and Dictator-In-Chief of TFB. A passionate gun owner, a shooting enthusiast and totally tacti-uncool. Favorite first date location: any gun range. Steve can be contacted here.


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  • Ratcraft

    Everybody wants a Colt, in fact everyone wants 10 Colts. Problem is no one wants a gun 30 to 40% more expensive than the competition does for a gun that works just as fine. Why don’t they make the Python, the Anaconda? They finally make a cheaper AR but it’s stripped to nothing and is still the same price as a loaded off brand.

    • joe schemo

      This is what happen when you stop innovation, research, and development and put all your eggs in one basket (military contract).
      AR15 market are so saturated these days, it is a bad idea to not develope new firearms. Say what you will about kel tec and ruger, but it seems like they are always coming out with new things.

      • Who said Colt had stopped R&D?

        • Sean

          Then what do they have to show for that imaginary R&D? They have introduced 1 truly new design in the last 40 years. The truly awful Colt 2000. That is it. Everything else has just been a modification of existing designs.

          • bucherm

            Don’t they have that neat little Multicaliber rifle you can swap AR-10 and AR-15 uppers with?

          • Sean

            But that isn’t new. Just a change in an existing 50+ year old design, that they didn’t even design in the first place.

          • bucherm

            Hate to tell you this killer, but barring caseless ammunition becoming practical or something *everything* in the gun world that is a “new product” is just a change in a design that’s decades old.

          • Sean

            Glock,XD,M&P,Kel-tec,FN etc…
            Colt never attempted to compete with a modern pistol. Never tried shotguns. Never tired a hunting rifle. No new target pistol. No new military rifle, even when the US Government was asking for something new.

          • bucherm

            “Glock,XD,M&P,Kel-tec,FN etc…”

            Sooo….a bunch of Browning style and blowback handguns? Desigsn that date to the 19th and early 20th Century?

            Do you see what I mean when I say “new products” are largely modifications of existing designs? At best you get some products that combine design elements not previously combined.

            ” Never tried shotguns. Never tired a hunting rifle. No new target pistol.”

            None of which would have been a significantly new product, in terms of basic design. You know it, I know it.

            “No new military rifle, even when the US Government was asking for something new.”

            They did, Colt backed out because they thought they could maintain a monopoly and hoped they could bribe their way to getting the contract back rather than risk someone like FN or Remington making a bid with a lower profit margin.

          • Anonymoose

            Pretty sure Colt made side-by-side shotguns back in the late 1800s. Also, Colt does make a hunting/target bolt-action rifle (M2012) and who needs a new target pistol when you’ve got the Gold Cup?

        • Zachary marrs

          Colts lack of a new product for 40 years, for one

          The only reason colt has lasted this long is because they forced the government to buy their overpriced m4’s

      • Ratcraft

        I agree.

    • Zachary marrs

      “Everybody wants a colt”

      Negative.

      I want bcm, Daniel defense, and others because i don’t want a cookie cutter ar15, as do many others, which is why colts civilian sales have dropped off

      • Ratcraft

        Colt makes a lot more than AR-15’s, you wouldn’t want a Colt 1911 if it was prices at a point that made sense?

        • Zachary marrs

          The problem is that they can’t make a 1911 at a price point that makes sense

          • Chase Buchanan

            Surely you can’t say that Colt’s stuff isn’t high-quality.

          • Zachary marrs

            There are other manufacturers that provide higher quality for lower prices

            Not too sure about 1911’s, but the qc on their ar’s has been on the decline

    • There are MANY reasons why you won’t see a new Python.

    • Ken

      They stopped making their double action revolvers because they require too much hand fitting to make economically. Colt revolvers are famous for their “bank vault tight” lockup due to the way that the hand pushes the cylinder forward against the forcing cone and right against the bolt. On a properly tuned Colt double action, the cylinder cannot move in any direction at the moment of firing. This also means that the hand on a Colt revolver is a consumable part, since it (not the extractor star like on an S&W) takes the force of firing. As much as I love Colts, I can understand why people don’t want to pay for a highly hand fitted revolver that requires armorer support on a regular basis when an S&W is cheaper and does not require that the hands be fitted and replaced regularly.

    • uisconfruzed

      I guess it would be rude to state I FINALLY got my tack driving, deer hunting Anaconda.
      I just hope I don’t need it repaired

  • Sig_Sauer

    File for Chapter 7 or 11 and move to a right to work southern state. Labor cost will be cheaper, no unions, and much lower taxes. Texas may even pay you to move to their state.

    By moving, you can lower your costs of your pistols. There are many supporters of Colt that will not buy your product until you move out of CT, a very anti-Second Amendment state with an anti-gun Governor. Move!

    • Sean

      Labor costs aren’t the problem. The problem was their terrible business practices. No innovation for decades. Refusing to adapt to market changes. Depending entirely on government contracts. Year after year, decade after decade. They did the same crap.

      • Sig_Sauer

        Sean & bucherm, Good points, guys.

    • bucherm

      “Labor cost will be cheaper, no unions, and much lower taxes.”

      Like Sean said, Labor costs aren’t the problem. S&W manages to turn profits while having most of it’s manufacturing done in New England, some in a plant with equipment dating back to the turn of the last century.

      Blaming it on the Unions is just a lazy way out that absolves the Colt Executives of their mismanagement. They spent decades assuming that they would always have government contracts, then once a fair contract for rifles was held they continued to assume they would get it and made a absurd bid. They produce okay, middle of the road rifles, but charge hundreds of dollars more than similarly speced rifles from companies like Sig, or S&W, or Stag(all companies that either currently or recently made their rifles in high-labor cost areas like New England) under the idea that everyone is willing to pay more for the pony stamp.

      They aren’t. Rather than rectifying this problem Colt instead dug in and…somehow managed to not make enough money to avoid defaulting on debt during the biggest liquidation of guns in US history.

    • lbeacham

      I suggest South Carolina.

  • Josh

    Thanks for the commitment to TFB I really enjoy this site.

    “Just to be clear: I am no longer consulting. NO exceptions. My focus is on TFB.”

    • Not that I did a whole lot in the past year, turning stuff down unless I knew the people asking for help, but I made that decision about 6 weeks ago to turn everything down. Less distractions.

  • The can has been kicked down the road until 2018 now that Morgan Stanley loaned Colt another $70 million.

  • Lance

    Well they dug there own grave on this. They remand high in there military bid now Remington and FN make M-16s and M-4s for US military and allied Armies. they dont make Pythons and Anacondas no Diamondbacks or SAAs so they only make Clinton era PC style AR-15s for direct sale ( though FFL sells LE carbines for civilians). Seems they need to go back to where they were in 1980s to come back from the brink for civilian sales.

  • Paul Epstein

    Thanks for linking those, they’re good articles on the subject. And given the degree that Colt is already in debt, an additional 70 million seems like a waste of time, especially at the interest rates mentioned. Without hugely profitable new products, they’re just going to be in the same position when the new loan comes due.

  • anonymous

    Show me a company controlled by an investment firm, I’ll show you some declining health. It’s for this reason that doctors stopped using leeches.

    You mean like Bain Capital? Being a leach is what made Mitt Romney qualified to be president of the United States — or so we were told by his supporters.

    It reminds me of the following passage from Glenn Reynolds’ review of Physics of the Future (Wall Street Journal, March 23, 2011):

    The most disturbing passage in “Physics of the Future” doesn’t concern the future; it’s about the present. In that passage, Mr. Kaku recounts a lunchtime conversation with physicist Freeman Dyson at Princeton. Mr. Dyson described growing up in the late days of the British Empire and seeing that most of his smartest classmates were not—as prior generations had been—interested in developing new forms of electrical and chemical plants, but rather in massaging and managing other people’s money. The result was a loss of England’s science and engineering base.

    Now, Mr. Dyson said, he was seeing the phenomenon for the second time in his life, in America. Mr. Kaku, summarizing the scientist’s message: “The brightest minds at Princeton were no longer tackling the difficult problems in physics and mathematics but were being drawn into careers like investment banking. Again, he thought, this might be a sign of decay, when the leaders of a society can no longer support the inventions and technology that made their society great.”

    The future belongs to those who show up. Mr. Kaku’s description of that future is an appealing one. But will we show up?

    See also “Friends Don’t Let Friends Get Into Finance” (Vivek Wadha. March 26, 2011).

    I could make a big impact by teaching engineering students about the real world and encouraging them to become entrepreneurs. I felt so excited that I joined the university without even asking for a proper salary. That was in 2005.

    I was shocked—and upset—when the majority of my students became investment bankers or management consultants after they graduated. Hardly any became engineers. Why would they, when they had huge student loans, and Goldman Sachs was offering them twice as much as engineering companies did?

    . . .

    An analysis of MIT’s graduate-employment data shows that the financial sector increased its hiring from 18 percent of its graduates in 2003 to 25 percent in 2006. So not only are the investment banks siphoning off hundreds of billions of dollars from our economy with financial gimmicks like CDOs; they are using our best engineering graduates to help them do this. This is the talent that our country has invested so much resource in producing.

    When most sectors of the economy grow, new companies are created. The authors found, however, that the finance sector is not driving firm formation; it is cannibalizing entrepreneurship in the U.S. economy by offering wage and skill premiums to individuals who might otherwise have started companies. It is also causing far greater volatility among publicly traded firms and a reduction in the quality of businesses started.

  • Next month’s headline/rebranding of Colt:
    Colt: A Freedom Group Company

    • Chase Buchanan

      Please, by all the gods, no!

  • Blake

    Find a corporate master than understands the firearms world & cares about long-term sustainability & profitability.

    Then, for starters, bring back the Woodsman.

  • lbeacham

    Winchester used to be a revered name and product. No company is guaranteed immortality without daily competition and customer agreement to rate product value in line with production capability and budgets. Sell at a profit or die. Low cost, high quality and fast service or manufacturing. Customers, pick the two out of three that suits your needs. Companies can’t survive a competitive market long doing all three.

  • Ben

    They would easily get upto Korth prices (and availability) is they started making the snake guns again.

    If I’ve got that amount of coin to spend and my choices is Korth or Colt? Korth every time.

    Never mind that there are loads of phenomenal old S&W revolvers that can be picked up very reasonably.

  • Jerry Rich

    Colts problems have nothing to do with any union issues. The culprit is the Romney business type parasites that strip all remaining value from a company and funnel it into their pockets.