Colt: The Continued Soap Opera.

[wojownik]

It would appear that the present company, fronted by Sciens Capital Management, plan to file bankruptcy, and then buy back whatever they want, and thereafter continue on without the present debt load. Those that held unsecured bonds are likely going to lose their entire investment, but they may not go quietly and force matters beyond 60 to 90 days. Also Sciens Capital Management's, apple cart might be upset if someone else outbids them.

So the soap opera continues...

There are going to be several potential twists and turns to this bankruptcy. Colt's bankruptcy plan is a fast rebalancing act that is really going to squeeze the bondholders. Colt wants to have the company auctioned off by August 3rd, with existing owner Sciens placing the stalking horse bid**. Colt says it will continue operations uninterrupted. I think that August target is unreasonably optimistic.

Sciens is not looking to let go of the reigns - it want to be the stalking-horse bidder for all assets and liabilities, and the two secured lenders agreed to provide a $20 million debtor-in-possession credit facility. So the equity holders and secured creditors have coordinated, but all this is subject to court approval.

The court will be most likely be made well aware of the rather tough positions Colt has taken vs. the bondholders, and the steadfast rejection of those revised terms by the bondholders. Because of the rather tense relationship between management and bondhodlers, the court may propose its own debtor-in-possession terms and auction milestones.

If that happens, the bankruptcy court could open the door for other financing proposals, and either avert - or more likely cause - another series of fights between Colt’s lenders and unsecured bondholders.

Sciens has already noted that if the bondholders push this into protracted litigation, then the company would simply liquidate. Then, the bondholders would see a total loss in that case. The bankruptcy court may weigh in, with that in mind - it will be interesting to watch what the court does.

** For those really into the trivia, when Sciens' says it wants to be the "stalking-horse bidder," that means it want to be the one that makes an initial bid on Colt's assets. Usually, from a pool of bidders, the bankrupt company chooses the stalking horse to make the first bid. In this case, Colt proposes to choose its existing equity owner to make the first bid.

Why? This would allow Colt avoid low bids on its assets. Once Sciens has made its bid, it has set the bar so that other bidders can't low-ball the purchase price. If another bidder comes in higher, then Sciens is presumably out. But its pretty clear that the secured creditors are making accommodations for Sciens that they might not extend to an outside bidder. And presumably, bidders are aware of that. This might be a poison pill from someone like Beretta coming in at this stage.

 

[NWcityguy2]

Now I'm not a financial guru, so let me see if I understand this. The plan is this...

1. The people who are already making Colts are going to continue doing so, in the same plant in NH.

2. Management stays as well.

3. The company who already owns most of Colt, intends to buy Colt at auction.

4. The people (at least some of them) who lent money to Colt, are boned.

So is there a possibility that nothing significant about Colt, or the guns that they make, will change?

 

[wojownik]

Now I'm not a financial guru, so let me see if I understand this. The plan is this...

1. The people who are already making Colts are going to continue doing so, in the same plant in NH.

2. Management stays as well.

3. The company who already owns most of Colt, intends to buy Colt at auction.

4. The people (at least some of them) who lent money to Colt, are boned.

So is there a possibility that nothing significant about Colt, or the guns that they make, will change?

Well, that's kinda what Colt's current owners seem to want to do. Whether bankruptcy court agrees, and whether the bookholders litigate this to liquidation, remains to be seen.

(BTW - Colt is in CT not NH, but that was probably just a typo).

 

[Old Fuff]

This from Bloomberg (Yup "The Bloomberg, past mayor of NYC). And I believe the writer, Paul Barrett, is a member of our forum.

Regardless, the article is accurate, fair and balanced.

Behind Colt's Bankruptcy, Financial Engineering That Misfired

Private equity owners saddled the storied gunmaker with massive debt
By Paul Barrett June 15, 2015 — 10:14 AM MST

The gun company founded by Samuel Colt has flirted with financial disaster for much of its 179-year history. Now the storied West Hartford (Conn.) maker of rifles and pistols is heading into Chapter 11, in large part because of more than a decade of dubious financial engineering and accumulating debt.

Colt Defense, as the main part of the company is now known, filed for bankruptcy protection on Sunday while listing as much as $500 million in debt. Cooling demand for its civilian semiautomatic rifles and handguns, as well as delays in certain large U.S. government and foreign military orders, have exacerbated the company's finances. But the main reason the company hasn't weathered rocky market conditions since the winding down of the wars in Iraq and Afghanistan is that the New York financiers who control the company borrowed too much and paid themselves lavishly.

As I reported in a feature story last year, the private equity firm Scien
s Capital and its affiliates loaded Colt with debt since the mid-2000s while taking cash out in the form of "distributions" and "advisory fees." Sciens remains the controlling owner of Colt Defense, according to a regulatory filing. An executive with Sciens did not immediately return a message seeking comment.

In 2009 and 2010, meanwhile, Colt somehow missed out on the "Obama surge," a run of strong civilian gun sales prompted by fears whipped up by the National Rifle Association that the Democratic president would stiffen federal gun control. The panic-based buying that lifted the small arms industry has now eased, making it even more difficult for Colt to move the military-style semiautomatic rifles it had hoped would be its salvation. "The industry's recent rapid growth is expected to slow over the next five years, increasing at a more modest average annual rate of 4.1 percent," according to the research firm Ibisworld.

Here's how Bloomberg News is reporting on the bankruptcy protection filing:

Colt’s current sponsor Sciens Capital Management LLC has agreed to act as a stalking horse bidder for all of its assets and liabilities related to existing agreements, according to a statement from the gunmaker. Existing secured lenders have agreed, subject to court approval, to provide a $20 million debtor-in-possession credit facility, Colt said. The current management team will remain in place.“

Colt remains open for business,” Chief Restructuring Officer Keith Maib said in the statement.

Open for business, perhaps, but vulnerable now to being sold off in pieces with little remaining behind the brand associated with such iconic firearms as the 1873 Single Action Army, known as "the gun that won the West," and the Colt 1911, the official sidearm of U.S. Army soldiers from WWI through Vietnam.

http://www.bloomberg.com/news/artic...nkruptcy-financial-engineering-that-backfired

 

[.455_Hunter]

How about FN as a buyer?

Other than the military AR-15 overlap, the Colt product line seems to complement the existing Browning and Winchester lines quite nicely...

Browning labeled Colt 1911?

Matched Colt SAA and Winchester 1873 box sets?

 

[huntsman]

Now I'm not a financial guru, so let me see if I understand this. The plan is this...

1. The people who are already making Colts are going to continue doing so, in the same plant in NH.

2. Management stays as well.

3. The company who already owns most of Colt, intends to buy Colt at auction.

4. The people (at least some of them) who lent money to Colt, are boned.

So is there a possibility that nothing significant about Colt, or the guns that they make, will change?

5. Have a hell of a yard sale.

 

[OilyPablo]

Talk about the antithesis of nimble corporation. The quick and the dead.

 

[NWcityguy2]

(BTW - Colt is in CT not NH, but that was probably just a typo).

Of course .

 

[NWcityguy2]

How about FN as a buyer?

The thing about Colt though, is how much is someone going to pay for just the name? It's not like anything new or interesting (gun wise) will come with it. If FN started selling a 1911 tomorrow, it would be outselling Colts in less than a year.

 

[Jim Watson]

Now I'm not a financial guru, so let me see if I understand this. The plan is this...
1. The people who are already making Colts are going to continue doing so, in the same plant in NH.
2. Management stays as well.
3. The company who already owns most of Colt, intends to buy Colt at auction.
4. The people (at least some of them) who lent money to Colt, are boned.
So is there a possibility that nothing significant about Colt, or the guns that they make, will change?

#2 and 3 are the key.
They will "reorganize", borrow more money, pay themselves lucrative management fees, salaries, and bonuses, do business as usual with no expansion and little gain, and the next bunch of creditors will be gypped, too.

 

[MAKster]

The shamelessness of Sciens Capital Management is appalling. They loaded up Colt with over $300 million in debt and paid almost all of it to themselves as dividends and management advisory fees. They are now putting Colt into bankruptcy wiping out all the investors who made the mistake of buying their bonds. Then Sciens will buy the company back after all the debt is erased.

 

[bannockburn]

Sure seems with Sciens Capital Management in charge it's like having the inmates running the asylum, all the while lining their pockets with investors money and dragging Colt down with it's massive debt.

 

[Old Fuff]

Keep in mind that while Sciens Capital Management have made their intentions clear they may not get away with it. The Bankruptcy Court will be calling the shots, not them. Other involved parties have not been heard from yet, but they likely will be.

In the end it is the crown jewels that will be the main prize. This would be Colt's copyrighted name, logos, models, patents, designs and other similar material. Ultimately everything else can be replaced, and is expendable.

 

[Deaf Smith]

I don't give a flip for Colt.

Those who fall behind, stay behind.

Deaf

 

[Aragon]

Most companies go away eventually. maybe the best thing is to just put it out of its misery.

They are not doing anything especially well anyway.

Nor are they selling any innovative products that customers cannot get enough of.

Colt's is not going anywhere. They'll be some fairly serious financial machinations, but the name alone is too valuable to put on the shelf.

 

[Aragon]

Now I'm not a financial guru, so let me see if I understand this. The plan is this...

1. The people who are already making Colts are going to continue doing so, in the same plant in NH.

2. Management stays as well.

3. The company who already owns most of Colt, intends to buy Colt at auction.

4. The people (at least some of them) who lent money to Colt, are boned.

So is there a possibility that nothing significant about Colt, or the guns that they make, will change?

What exactly does Colt's produce in NH? I thought their main factory was in CT?

 

[Old Fuff]

See post #58.

 

[Aragon]

$350 million plus reasons. not to mention, S&W and ruger already have great names and offerings.

It really wasn't too long ago that S&W was on its ass financially...

 

[Aragon]

I don't think Colt will be bought by FN or Beretta.

I think if either bought the Colt name their products would book looked at like "AMF Harleys" when AMF bought HD. It would hurt sales.

Yes, FN licenses the Winchester name, but they're not paying what someone would have to pay to secure the Colt's name. When it comes to Browning, there really never was a large scale Browning owned manufacturing operation. Browning's firearms were built by Winchester, Remington and others.

 

[Aragon]

The thing about Colt though, is how much is someone going to pay for just the name? It's not like anything new or interesting (gun wise) will come with it. If FN started selling a 1911 tomorrow, it would be outselling Colts in less than a year.

Probably not, else it would be doing so as there would be little concern about cannibalization.

 

[Old Fuff]

When it comes to Browning, there really never was a large scale Browning owned manufacturing operation. Browning's firearms were built by Winchester, Remington and others.

Late during the 19th century John Browning made a marketing deal with Colt and Fabrique Nationale (FN) to manufacture guns under his patents. The FN plant was far larger then the Colt factory, and manufactured everything from pistols to cannons. Ultimately FN, Colt, Winchester, Remington and Savage manufactured firearms under license and paid the inventor a substantial royalty on each gun they made. Browning himself became a multi-millionaire.


It's called, "easy money."

 

[ilbob]

I blame the bondholders for being dumb enough to buy the bonds in the first place. I would bet the ownership group has done this kind of thing before.

 

[WestKentucky]

Twofold...on one hand, investors dumb enough to get into a situation with unsecured loans deserves to lose a little which may hopefully straighten them out. The school of hard knocks is a heck of an educational staple. On the other hand, the jokers who are basically trying to rip off the unsecured loans should be ashamed of themselves. Moves like that are sure to garner enough public dissent to put them on the endangered species list.

 

[Aragon]

I blame the bondholders for being dumb enough to buy the bonds in the first place. I would bet the ownership group has done this kind of thing before.

It wasn't a matter of being "dumb." It was a matter of being GREEDY. Colt's had a fairly nasty past when it went to sell these bonds. What has finally happened is no huge surprise to anyone. The bonds were bought because the price was right. Easy money -- until things went down the tubes...

 

[Aragon]

Late during the 19th century John Browning made a marketing deal with Colt and Fabrique Nationale (FN) to manufacture guns under his patents. The FN plant was far larger then the Colt factory, and manufactured everything from pistols to cannons. Ultimately FN, Colt, Winchester, Remington and Savage manufactured firearms under license and paid the inventor a substantial royalty on each gun they made. Browning himself became a multi-millionaire.

It's called, "easy money."

I wasn't aware that Winchester produced any designs licensed from JMB?