Gunmaker Colt Defense in Chapter 11 talks with bondholders

The manufacturer of handguns and modern sporting rifles (MSRs) projected revenue of $41.5 million in the three months ended April 5, down 17 percent from the year-ago period, despite higher demand for its firearms, according to a filing.

The company said its liquidity position limited its ability to produce sufficient commercial product. It also cited delays in the timing of U.S. government and international sales.

Colt Defense is soliciting bondholders to approve a pre-packaged reorganization plan under Chapter 11 of the U.S. Bankruptcy Code in the event that a restructuring offer fails, according to a research note from Standard & Poor’s Rating Services.

S&P estimated Colt Defense could be valued at 4x EBITDA, or a total enterprise value of $105 million, based on its financial projections.

Facing a deadline of June 14 on the interest payment, Colt Defense said it is in discussions with bondholders and that it hopes it will reach a “consensual restructuring transaction,” according to a filing.

Sciens Capital Management is a backer of West Hartford, Conn.-based Colt Defense. In 2013, Colt Defense paid $14 million in cash to repurchase all of its common units previously held by the Blackstone Group. Blackstone no longer owns an equity stake in the company.

Colt Defense drew a downgrade to default from S&P on May 19. S&P analyst Chris Mooney said it’s doubtful Colt Defense will meet the interest payment deadline, “given the company’s heavy debt burden, which we view as unsustainable.”

Colt Defense and Sciens did not return phone calls.

Colt Defense said the issues with its debt payments “raise substantial doubt about the company’s ability to continue as a going concern,” according to a May 21 filing.

Along with the $250 million in senior unsecured notes, Colt’s capital structure includes a $33 million first-lien term loan, and a $70 million second-lien term loan.

Colt Defense marks another troubled gunmaker in the buyout sphere after Cerberus Capital Management tried unsuccessfully to sell Remington Outdoor.  Cerberus is now allowing LPs to sell their stakes into a separate entity for Remington Outdoor.