For years firearms commentators have been pondering how long Colt could maintain their course of action in the firearms community. For instance, there are many who believe that Colt has operated as if there was no true competition to their products, simply because of their name.
However, Colt’s insistence in overcharging consumers on name brand only, without offering significantly improved products, has led them down the path of destruction in a market full of. Well the Reaper has finally caught up with Colt. The only option the company had was to file Chapter 11 bankruptcy to avoid being shredded by its creditors, and likely the competition.
It is true that Colt is one of the oldest firearms manufacturers in America. It is also true that the Colt name will always hold a strong association to the AR-15 and all the variants that have followed. And of course, Colt will always be remembered with the Government Model 1911 as well. For many years, Colt held the ring for government and law enforcement contracts.
In order to get out of Chapter 11, Colt will have to show the Federal Court that they can reorganize into a business plan with a likelihood of profit. In return, Colt will be protected, at least temporarily, from their creditors taking legal action against them.
Like several previous firearms companies bankruptcies, Colt has already partnered with an investment firm willing to purchase a large portion of Colt’s assets and liabilities. That company is Sciens Capital Management LLC. This partnership will ensure that Colt operations will continue production throughout the bankruptcy process.
As a legal matter of Chapter 11, Colt will have to go through a public announcement process to allow other bidders the opportunity to make claims on Colt. It should be interesting to see who is interested, and perhaps more important – why!
If Colt plans to resurrect itself from the ashes of bankruptcy, the management team will have to realize that the AR-15 and 1911 markets have drastically changed. Consumer demand for features, new materials, and adaptability has gone through the roof. Sitting on the throne is no longer a business model.
The Colt Press Release
Here is the Press Release from Colt Manufacturing:
“WEST HARTFORD, Conn.– Colt Defense LLC (“Colt” and the “Company”) announced today in voluntary Chapter 11 materials filed in the United States Bankruptcy Court for the District of Delaware (the “Bankruptcy Court”) a process that will allow for an accelerated sale of Colt’s business operations in the US and Canada. Colt’s current sponsor, Sciens Capital Management LLC (“Sciens”), has agreed to act as a “stalking horse bidder” and has proposed to purchase substantially all of Colt’s assets and assume secured liabilities and all liabilities related to existing agreements with employees, customers, vendors, and trade creditors.
Colt intends for the sale to ensure a smooth and swift transition of the business with all of its iconic brands, products, and operations supported by a stronger balance sheet due to a significantly lower debt burden. As part of the Sciens led bid, Colt will be able to reassure its employees and local community of its commitment to continued operations in West Hartford through a long term extension on the lease for its manufacturing facilities and campus in West Hartford. In accordance with the sale process under section 363 of the Bankruptcy Code, notice of the pending sale to Sciens will be given to third parties and competing bids will be solicited, with an independent committee of Colt’s board of managers established to manage the bidding process and evaluate bids.
The Company intends to continue its normal business operations throughout the accelerated sale process and has asked the Bankruptcy Court to approve certain Company requests to protect trade creditors, vendors, and suppliers, thereby allowing for its operations to continue uninterrupted during the Bankruptcy Court supervised sale process. Union-related agreements will also be unaffected and employees will be paid all wages, salaries and benefits on a timely basis.
The current management team, which has been led since October 2013 by President and CEO Dennis Veilleux, will remain in place throughout the process. “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,” said Keith Maib, Chief Restructuring Officer of Colt Defense LLC. “While entering Chapter 11 protection in the absence of a consensual agreement with our noteholders was not our preference and we do not take it lightly, we are confident it is the best path going forward and will enable us to continue to gain traction on a challenging but achievable turnaround in our business performance and competitive positioning in the international, U.S. government and consumer marketplaces.
Importantly, Colt remains open for business and our team will continue to be sharply focused on delivering for our customers and being a good commercial partner to our vendors and suppliers. We look forward to successfully executing on this plan, which provides a sound path of stewardship for an iconic American brand and the key stakeholders we serve.” Colt’s existing secured lenders have also agreed to provide, subject to approval of the Bankruptcy Court, $20 million in debtor in possession credit facilities to allow for continuation of operations in the ordinary course of business during the Chapter 11 process. The entire process is expected to be complete within 60-90 days.
On June 12, 2015, Colt’s previously announced exchange offer, consent solicitation and solicitation of acceptances of a prepackaged plan of reorganization with respect to its 8.75% Senior Notes due 2017 expired. The conditions to the exchange offer, the consent solicitation and the prepackaged plan of reorganization were not satisfied and such conditions were not waived by Colt. All 8.75% Senior Notes due 2017 of Colt tendered and not validly withdrawn pursuant to such exchange offer will be returned promptly to the tendered holder thereof in accordance with the Offer to Exchange, Consent Solicitation Statement, and Disclosure Statement Soliciting Acceptances of a Prepackaged Plan of Reorganization, dated April 14, 2015, as supplemented, and applicable law. Perella Weinberg Partners L.P. is acting as financial advisor of the Company, Mackinac Partners LLC is acting as restructuring advisor of the Company and O’Melveny & Myers LLP is the Company’s legal counsel.”
For access to general information about the Chapter 11 cases, readers can go to: