Colt Defense, LLC is teetering on the brink of bankrupcy. Yesterday, the rating agency Standard & Poors reduced their credit rating from CC to D. This is the lowest level possible.
Standard & Poor’s reduced Colt’s rating two grades to D from CC, according to a statement Tuesday from the credit grader. The new rating means S&P considers the company “in default or in breach of an imputed promise” and that it has ruled out the possibility the manufacturer will make good on a missed interest payment during a 30-day grace period.
The weapons maker didn’t pay the $10.9 million due May 15 to holders of its $249.4 million of 8.75 percent unsecured notes due November 2017, according to S&P. Colt had warned in November it was “probable” it wouldn’t have the cash to make the payment if it didn’t meet internal sales forecasts.
On Monday, Colt issued a press release saying it had extended their tender offer to bondholders. This tender offer is asking bondholders to swap existing bonds for new bonds at a very substantial cut in their face value. If 98% of bondholders don’t accept this swap by May 26th, then Colt Defense is prepared to go into bankruptcy. They say they have a “prepackaged plan of reorganization.” This is the third time Colt has extended their deadline for the tender of bonds for exchange. If they do go into bankruptcy, unsecured creditors will get just pennies on the dollar.
On Friday, Colt announced a new stocking dealer program. What concerns me the most about it is the pricing of their models involved in the program.
Colt has recently refocused its core model lineup to ensure ample opportunity for consumers to acquire the most sought-after models. These same models have been repositioned in the market with more attractive suggested retail price points: the standard 1991 Government Model now has an MSRP of $799, the Combat Commander carries an MSRP of $849, the Defender is now positioned at an MSRP of $899 just to name a few.
This gives the Colt 1991 Government Model a MSRP less than that of Springfield’s Mil-Spec 1911 and Ruger’s SR1911. This reeks of desperation to me.