Colt Defense: More Financial Problems

Colt Defense Large_Colt Defense LLC

Following right on the heels of Colt Defense narrowly avoiding default on its loans, Colt Defense announced it may miss its May 2015 high yield bond payment. Forbes reports:

Colt Defense may not have sufficient cash or availability under its credit agreement to meet the May 15, 2015 interest payment for its 8.75% senior notes, the company said in a regulatory filing today. The 2017 notes are quoted at 50/51, with no trades seen this morning, according to sources and trade data.

Recall that the company narrowly avoided missing its interest payment this month, thanks to a $70 million lifeline loan from Morgan Stanley.

In today’s Form 10-Q filing for its fiscal third quarter, the company disclosed that it also does not have sufficient funds to repay the senior notes upon an actual acceleration of maturity, and in the event of an accelerated maturity, the company’s lenders may take actions to secure their position as creditors and mitigate their potential risks. These events would adversely impact the company’s liquidity, the company said, and would “raise substantial doubt about the company’s ability to continue as a going concern,” the filing stated.

For the third quarter, Colt reported a net loss of $7.8 million on net sales of $51.1 million. This compares to revised net income of $10.9 million on net sales of $73 million in the year-ago equivalent period. For the nine months ended Sept. 28, 2014, the company recorded a net loss of $28.4 million, driven primarily by a continued decline in market demand for commercial modern sporting rifles and the timing of international sales.

Despite the merger of Colt’s Mfg. and Colt Defense – which means that Colt Defense no longer needs to pay the owners of the Colt name to use it, and that it does not need to sell through Colt’s Mfg. – Colt has not been having a good financial year. They have been underbid on military contracts, had to recall and re-work M240 machine guns they had delivered, and their commercial sales have been overshadowed by companies offering cheaper or more exotic products.

Colt’s 3rd Quarter 10-Q filing can be found here. One of the interesting lines is below:

 On March 22, 2013, Colt Defense purchased 31,165.589 common units (“Unit Repurchase”) from Blackstone Mezzanine Partners II-A L.P. and Blackstone Mezzanine Holdings II USS L.P. (collectively, “Blackstone Funds”) (representing 100% of the Colt Defense common membership units held by the Blackstone Funds) for an aggregate purchase price of $14,000 pursuant to an equity purchase agreement, dated as of March 22, 2013 (“Unit Repurchase Agreement”), by and among Colt Defense and the Blackstone Funds.  In accordance with the Unit Repurchase Agreement, upon consummation of the Unit Repurchase, the Blackstone Funds delivered the certificates representing the common units held by the Blackstone Funds to Colt Defense for cancellation, and the rights of the Blackstone Funds under the Amended and Restated LLC Agreement, including appointment rights with respect to Colt Defense’s Governing Board, were terminated. The Unit Repurchase Agreement provided customary releases and indemnities for Colt Defense and the Blackstone Funds.

Essentially, after Newtown, Blackstone Funds wanted out of a company that made guns, and Colt was forced to buy back their stake in the company.

Thanks to Daniel for his assistance with this article.



Nathaniel F

Nathaniel is a history enthusiast and firearms hobbyist whose primary interest lies in military small arms technological developments beginning with the smokeless powder era. In addition to contributing to The Firearm Blog, he runs 196,800 Revolutions Per Minute, a blog devoted to modern small arms design and theory. He can be reached via email at nathaniel.f@staff.thefirearmblog.com.


Advertisement

  • Zachary marrs

    BEGONE YOU CANCEROUS LEECH!

    it must suck when the military contracts stop rolling in, and all this time you’ve willingly ignored the only market that can save you.

    • claymore

      Somebody piss in your wheaties today?

      • Zachary marrs

        Yeah, i did

        I’m hardcore like that >:(

      • i’m right

        He’s right. You must be .gov

        • claymore

          What on earth would .gov have to do with Colt?

          • i’m right

            lost the M4 contract to FN and had a major recall on the M240 It’s just another chapter in the continuing saga of “what went wrong at Colt” it’s surprising that the company has lasted this long really.

          • claymore

            Yea so what has that got to do with .gov?

          • i’m right

            they catered to government contracts, not me! now they’re screwed.

          • claymore

            So the gov. was not at fault Colt was.

          • i’m right

            yes

    • sam

      Yep. Poor Colt. I mean, looking at the commendable stuff they’ve made over the centuries, it’s sad. But it’s like in the Evil Dead movies where the guy’s friends and loved ones come back as evil zombies. I just want it to be over, for the sake of their history as much as anything.

  • Michael R. Zupcak

    The only reason I click these Colt articles is to see if there’s any info on the supposed LWRC acquisition. Does anyone know what’s going on with that? I’m assuming it’s a dead deal but there’s no information I can find.

    • Seburo

      I’d like to know about the LWRC acquisition too. Because I don’t want to see an innovative company go down with Colt .

      • Michael R. Zupcak

        lol! That’s why I want to know, too! Even if Colt wasn’t “going down”, LWRC still would be if they were sold to a soulless conglomerate like Colt.

    • There has been no mention of acquiring LWRCI in Colt’s SEC filings. Frankly, they don’t have the money to buy anyone else.

  • Don Ward

    Restart the Colt Python Line
    Make them to original quality standards
    ?
    Profit!

    • Zachary marrs
    • There are about half a dozen reasons why that can’t happen.

      • Emir Parkreiner

        Care to tell us what these reasons are rather than their quantity?

        • Zachary marrs

          Quality control, the need for hand fitting, which requires skilled workers (the union would have a fit) cost, lack of demand, among others

          • Don Ward

            I think there’s plenty of demand now for good revolvers. Hell. People by things like The Judge and Chiapa Rhino.

          • Zachary marrs

            Can’t argue that

          • noob

            colt could license the design and technical data package to a large number of small shop craftsmen who will make them with care and love and pay a modest royalty?

            and they could then co-brand and run marketing for the syndicate of makers.

          • Zachary marrs

            Fn already has the m4 tdp, and the a2 tdp has been out for awhile

            While i imagine some shops would pay for the tdp, I’d doubt there would be many takers

      • J.T.

        Yep. Even if hell froze over and they brought back the snake guns, they would be so expensive sales would be incredibly low. If Colt were to ever bring back a DA revolver line, it would probably be the Colt Trooper. Those would actually be able to compete with S&W.

  • Ya know, they could probably start making reproductions of some of their older products and make enough that way. After All, it worked for Winchester, you don’t hear about them going out of business.

    • Based_10mm

      I’m not sure if your being sarcastic or not, but Winchester went out of business 10 years ago. The new stuff is all out sourced with the Winchester logo on it.

    • Like the all american 2000!!!!
      (See: Eugene Stoner sucks at pistols)

      • Zachary marrs

        No, colt sucks at trying to produce armalite designs

  • johngalts_brother

    I hate to see the Colt name go down, grew up playing cowboys and indians and the guns we played with were always Colts and Winchesters toys.
    Colt must have had very bad top management.

    • Roland

      Yep, I agree with you. Colt and Winchester are American Icons of firearms.I would have picked Colt or Winchester over any other firearms manufacturer, now I am not too sure.

  • Colt should do the opposite of what Saint Patrick did – bring the snakes back!

    • SM

      It’s my understanding that they were discontinued because they were not economical to produce.

      I know I wouldn’t buy one. Too much money for no significant increase in performance.

      • Raven

        They complain about not having staff with the technical skills and that making the snake guns would be too expensive. To that, I say “bullshit, you’re making a $50k replica Bulldog Gatling gun.”

        • Zachary marrs

          But how many gatling guns do they have to make to keep up with demand?

          Compare to the amount of people who would buy a python

          • Emir Parkreiner

            Your post is logical and illustrates general business acumen. There’s no place in Colt for that kind of thinking.

      • Then make them cost effective. Simplify the design and brand it as the “Rattler.” The only thing holding Colt back is Colt…

        • Zachary marrs

          Colt would rather die than make a profit.

          I’d hate to see colts idea of a budget line

          • You can lead a Colt to water but you can’t make him drink.

          • Zachary marrs

            But if you bring him to a cliff he will jump off willingly

        • noob

          40% polymer, 30% metal injection moulding, 30% cnc machining from billet.

          that’s trolling.

  • Don Ward

    The crazy thing is that the public is clamoring for traditional Colt designs. Think of how many ARs, 1911s and Colt Single Action Army guns are being built by competing manufacturers. And that’s not even factoring in the resurgence in popularity of self-defense DA revolvers.

  • Seburo

    So that’s good news for LWRC fans.
    Next up Colt owned by Freedom Group! Unless they can somehow get themselves a bailout or nationalized, which I highly doubt.

  • Paul Epstein

    It’s probably more due to the reason why Kel Tec produces in small batches than the practice itself- they don’t take out loans to expand production. Limits their profitability, so you’ll never see a publicly owned corporation doing it, but the resiliency and flexibility that comes from not having to make debt payments seems to be paying off in their case.

    • noob

      that’s old school responsibility right there.

      if only kel-tec licensed older kel-tec designs like the sub-2000 to 3rd party mfgs they could have the best of both worlds – wide availability of parts and weapons and sweet, sweet royalty fees.

  • Zachary marrs

    Keltec knows the value of a good r&d team

  • noob

    the military industrial complex has been seduced by the idea of strategic airpower. Every mid-level supplier with a machine shop or engineering capacity I know in Australia is scrambling for JSF parts contracts, or making drones.

    somebody got it in their head that infantry in combat should be used to find and observe the target, then provide a cordon around it while high explosives level it from above.

    Great if you have dominance over the skies. Great if you have $200 million a year to keep a jet in the sky over the area of operations. Great if you don’t care that your drone can barely see what it’s shooting at, and can’t assess the target itself – no you have to ask a human to do that at ground level because the small drones that could get that close to look just don’t have the range to get there.

    small arms is a low priority for the military industrial complex. they’d rather take the man out of the loop entirely and run things remotely from the sky. Will it work? We will see.

    and good luck to them to build a drone that can meet a civilian, and understand that that civilian is concerned about jobs for his sons and clean water to drink. The day a drone can do foreign internal defense jobs like convince a village to accept immunisations, train a company of local militia and help dig a well, I guess humans will be obsolete.

    (and then we’ll need small arms more than ever).

    • Mazryonh

      Great if you don’t care that your drone can barely see what it’s
      shooting at, and can’t assess the target itself – no you have to ask a
      human to do that at ground level because the small drones that could get that close to look just don’t have the range to get there.

      Do you have any links showing more about this?

      • noob

        disquis moderates links so I’ll paste in the quote from RAND

        “The chief military drawback has perhaps received the least attention of all: A drone attack destroys the critical intelligence that is needed to ensure that the tactical strike can be converted to strategic advantage.

        Unlike a manned raid, the drone has no ability to conduct sensitive site exploitation, to vacuum up clues, pocket litter and seize laptops and cell phones that are all vital to the high-tech tracking of terrorist and enemy networks. Numerous slogans and catch-phrases have been coined by the U.S. military over the past decade, and one of the earliest insights that special operators seized on, and built their entire approach around, was Intelligence Drives Ops.”

        – Linda Robinson, Senior International Policy Analyst, RAND

        “The Downside of Drones” November 2013.

        That’s just an executive summary of the need for ground troops for sensitive site exploitation to make sure that you actually hit your intended target and not just some dude who happened to look like him. Or we need some kind of radically better power source for robots beyond batteries or petrol hybrid power so that a walker unmanned ground vehicle can travel to the site, sift the rubble and pull security on the site while it is being investigated.

        I don’t know how friendly local authorities and local people would be when they are getting questioned by a robot controlled via satellite from a bunker somewhere.

        • Mazryonh

          Thanks for the link, though it doesn’t contain anything relevant to the passage I mentioned, specifically about how small drones needed to get an “up close and personal view” don’t have the range to get where they’re needed; with all the hype about advances in camera and optics technology, I’m surprised military-grade drones don’t have cameras capable of counting the hairs on someone’s face from an unbelievable distance (assuming clear visibility).

          You might want to read something on a similar tack at a wordpress blog called “Defense Issues” which has a few interesting articles on the uses of drones.

          And that bit about “I don’t know how friendly local authorities and local people would be when they are getting questioned by a robot controlled via satellite from a bunker somewhere“–I think I remember the opening scene of 2014 Robocop movie where a bunch of humanoid and large combat walker drones, all with autonomous threat assessment and threat response capabilities, and capable of discerning minute details like comparing the fingerprints of people with their hands up against a database, eventually make foreign conflicts free of American casualties.

          How many in military drone R&D said “I’m working on that” when they saw that scene?

    • Yellow Devil

      Well to be fair, historically small arms has always lagged behind other sexy items in the U.S. Military Arsenal. It’s not just a recent revelation. Case in point, Spanish American War. Even though the U.S. had one of the most modern Naval fleets in the world, the U.S. Army was using Springfield Model 1892-99 Krag-Jørgensen and Winchester Model 1894 rifles, who were outclassed by the Spanish forces who used Mauser rifles.

  • noob

    some winchester ammo is made in australia. I’m told.

  • spencer60

    More ‘exotic’ products? A Glock 17 is ‘exotic’ now?

  • Roland

    How will Colt’s financial problems effect Canada’s Colt Diemaco?

  • usmcmailman

    Baloney ! Colt made the BEST 1911, It was the “original” All others are copies !

  • Dragonheart

    Colt has only one choice if they are going to survive, dump the Unions and move their operations to a more gun friendly part of the country. If their management can’t see this then they need new management.

  • Paul Epstein

    A. The owner of Kel-Tec says that’s why they are always short on production, because he won’t take out loans to build more facilities and wait until they have cash on hand to do so. I don’t need to be on the board because that’s a statement he’s made publicly.

    B. I stated it limits profitability, and that being the reason publicly owned companies don’t do the same thing, right there in the post you replied to- and your argument is that I don’t understand finance because I don’t understand how taking out loans can be profitable?

    C. If you’re in a market where the ability to generate return on your investment is highly speculative, the theoretical ability to profit from a particular loan may not materialize. And that’s not just Colt. Look at the current oil drilling bust- do you really think any of them are able to generate profit on those loans at this point in time? They were solid financial bets at the time they were made, but market circumstances can always make the bets go wrong. It’s the nature of the beast, even good odds are not certain odds.

    In the future, read people’s posts, ascertain whether they’re discussing information that is publicly available, and determine whether your point is correct in the specific context as well as general- because it’s sure as hell not illustrated by the specific example here.