Colt Defense LLC

As I wrote last week, Colt Defense LLC is teetering on the verge of bankruptcy. Yesterday, they once again extended their deadline for bondholders to either accept their offer to exchange their notes or Colt goes ahead with a prepackaged bankruptcy filing. The deadline now expires on June 2nd. So far, only 5.7% of bondholders have tendered their old bonds in exchange for the new notes.

WeaponsMan reported a few days ago that Colt has mortgaged some of its patents. According to Daniel Watters, Colt has mortgaged these patents to a number of borrowers with the latest being Cortland Capital as security for a $33 million loan.

Of course, the finance companies do not want to exploit the patents; they just want security for their loans, and winding up holding the patents in lieu of principal and interest is not their preferred outcome. They’re in the money racket, not the gun racket.

But if Colt defaults on its Cortland loan, Cortland winds up holding a bag of patents (and any other security Colt pledged) rather than its money. In such as case, they might be able to charge Colt royalties for using these inventions of its employees and former employees. If Colt production continues. Or resumes. Most likely, they would try to sell the patents.

The patents are one of the true stores of value in Colt Defense LLC, but they have been mortgaged as part of the financial looting monetization of the company that the last several rounds of owners have undertaken. The company’s trademarks are also a highly valuable asset. One wonders if they, too, have been mortgaged.

There is some good news for Colt. They have won a $36 million contract to deliver M4 and M4A1 carbines to a number of foreign countries including Jordan, Panama, and Colombia.

Colt Defense LLC, West Hartford, Connecticut, was awarded a $36,104,812 firm-fixed-price, indefinite-delivery/indefinite-quantity foreign military sales contract (Jordan, Antigua and Barbuda, Belize, Colombia, Hungary, Oman, Panama, Romania, Senegal, Lebanon, Romania) for M4/M4A1 carbines. Funding and work location will be determined with each order with an estimated completion date of May 21, 2018. Bids were solicited via the Internet with one received. Army Contracting Command, Warren, Michigan, is the contracting activity (W56HZV-15-D-0038).

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.