Gun maker Colt Defense has filed Chapter 11 bankruptcy, but has secured funding to continue operating while it auctions off its business to reduce its $355 million debt burden.
The West Hartford, Conn. company said its current sponsor, Sciens Capital Management, had agreed to act as a “stalking horse bidder” and buy substantially all of Colt’s assets. Under bankruptcy rules, competing bids will also be solicited.
Colt’s existing secured lenders have also agreed to provide $20 million in financing to allow for the continuation of operations. The current management team will remain in place throughout the process, which is expected to be completed within 60 to 90 days.
“The plan we are announcing and have filed today will allow Colt to restructure its balance sheet while meeting all of its obligations to customers, vendors, suppliers and employees and providing for maximum continuity in the company’s current and future business operations,” Colt’s chief restructuring officer Keith Maib said Sunday in a news release.
The bankruptcy petition lists Wilmington Trust Co. as Colt’s largest creditor, with $260.9 million in bond debt.
According to The Wall Street Journal, Colt has been hampered by supply-chain and working capital issues, a slowdown in rifle sales and its loss of a key contract to supply the U.S. Army with the M4 line of firearms. Moreover, accounting problems caused the company to revise prior years’ reported financial results and miss a creditor’s initial filing deadline for an annual report.
The maker of such legendary firearms as the Colt .45 borrowed $70 million from Morgan Stanley last year to pay interest on its bonds, and struck a $33 million refinancing deal this year with hedge fund Marblegate Asset Management.
But bondholders balked at Colt’s proposals for a debt-for-debt exchange or a “prepackaged bankruptcy” filing, either of which would have cut the amount the company owed them.
Ultimately, Colt “failed to turn its performance around or negotiate a deal with all its creditors” before a June 15 interest payment deadline, the WSJ reported, citing people familiar with the matter.
The company previously filed for bankruptcy protection in 1992, emerging again two years later.