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.