Colt’s exit from bankruptcy has hit a snag: The owners of the company, Sciens Capital Management have defaulted on a $15 million funding commitment to Colt Defense LLC, as part of the company’s exit from bankruptcy. The private equity company agreed to pay the money to help Colt meet its commitments to its lenders, but failed to actually provide the money within the deadline. Nasdaq.com reports:
Gun maker Colt Defense LLC’s emergence from bankruptcy has been thrown into turmoil by a default on a $15 million funding commitment by private-equity owner Sciens Capital Management.
After Sciens missed a December deadline to come up with the money bondholders scrambled to find more cash to cover most of the shortfall and ensure the deals designed to usher Colt out of bankruptcy stay in place. The Connecticut firearms manufacturer said in court papers that it is on track to emerge from chapter 11, but the role of its long-time owner remains to be seen.
A Colt spokesman and a lawyer for the official committee of unsecured creditors declined to comment on the funding miss, which surfaced after Colt’s chapter 11 emergence plan was confirmed in mid-December.
Sciens principal Daniel J. Standen, who is also chairman of the governing board of the Colt parent company, said in a court filing Wednesday that the delay in funding was due to the need to document the new Colt investment as part of Sciens’s effort to enlist its investors in the deal. The firm raises money separately for each new investment, Mr. Standen said, and in order not to hold Colt in bankruptcy, it negotiated a delayed timeline for participating in the capital raise.
“Sciens strongly believes that the debtors’ business is worth saving and has therefore agreed to help fund the Debtors’ exit from chapter 11 by participating in the offering,” Mr. Standen wrote.
Sciens was supposed to participate in the new investment along with bondholders. According to documents filed in the U.S. Bankruptcy Court in Wilmington, Del., it didn’t meet the December deadline for the funding.
Court papers say Sciens has days to cure the default and to start paying up if it wants to stay involved with the storied company, maker of the “gun that won the West.” The private-equity firm has until Friday to come up with at least $1 million to hang on to a piece of Colt. If Sciens funds $2.6 million Friday, it gets another month to find more money and perhaps make good on its full commitment.
Court papers describe a fluid situation in which lenders, creditors and Sciens remain committed to getting Colt out of bankruptcy, but Sciens’s future participation hangs on whether it meets the new deadlines for funding. For most of the bankruptcy case, bondholders and Sciens were at odds, with bondholders accusing the private-equity firm of draining Colt of cash needed for research and development to keep it competitive.
Sciens denied the allegations and said it was committed to Colt’s success.
What this means is that if Sciens does not come up with at least part of the money by tomorrow, then it could be stripped of its involvement with the famous firearms manufacturer. It may be editorializing for me to say this, but perhaps that would be in Colt’s best interests, in the long run. Sciens’ management of the company has brought very little but trouble for the company.
We have been covering Colt’s financial struggle since November of last year, beginning with initial signs of Colt’s default, and continuing with the withdrawal of Blackstone Funds’ equity, the Cortland Capital loan, debt restructuring, the news that Colt had mortgaged some of its patents, Colt filing Chapter 11,the possibility of a Native American tribe coming to Colt’s rescue, and Colt’s new joint contract with FN, over which Remington subsequently sued them both, and the Army.