Things are not looking good for Colt Defense LLC. From the S&P press release …

Nov 16 – Standard & Poor’s Rating Services said today that it has lowered its corporate credit rating on Colt Defense LLC [CDEFHC.UL] (Colt) to ‘B’ from ‘B+’. At the same time, we lowered the issue-level rating on the company’s unsecured notes to ‘B’ from ‘B+’, although the ’4′ recovery rating remains unchanged. We have placed both the corporate credit and issue ratings on CreditWatch Negative.

“West Hartford, Conn.-based Colt, a manufacturer of small arms for the
military and law enforcement, has been experiencing lower revenues and
earnings over the past year due to decreased demand for its M4 carbine from
its main customer, the U.S. military, as well as law enforcement customers, ,”
said Standard & Poor’s credit analyst Christopher DeNicolo. “The company had
planned to replace this demand with orders from international customers and
new products, but has had only limited success, since a large order it had
expected this year has been delayed. The lower volumes have also resulted in
deteriorating margins, mitigated somewhat by cost-reduction efforts.”

The reduced earnings and higher debt levels following a refinancing in
2009, have resulted in total debt to EBITDA increasing to almost 7x for the 12
months ended Oct. 3, 2010, from 3x in the same period in 2009, and funds from
operations to debt of around 0%, down from 16%. Although we expect some modest
improvement in revenues and earnings in fourth-quarter 2010, Colt’s results
will likely be much lower than the same period in 2009–which we believe will
probably result in further deterioration in its credit protection measures.

I guess the Pentagon only needs so many M4 Carbines.

Note, Colt Defense should not be confused with Colt’s Manufacturing Company, the civilian manufacturer, that was split off from Colt Defense in 2002.

[ Many thanks to Carl for emailing me the info. ]