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.