Colt in bankruptcy to sell assets after notes exchange offer expires

By Caroline Salls

Pittsburgh, June 15 – Colt Defense LLC filed Chapter 11 bankruptcy Sunday in the U.S. Bankruptcy Court for the District of Delaware to allow for an accelerated sale of its business operations in the United States and Canada, according to a news release.

Colt said its previously announced exchange offer, consent solicitation and solicitation of acceptances of a pre-packaged plan of reorganization in connection with its 8¾% senior notes due 2017 expired on Friday.

The conditions of the exchange offer, the consent solicitation and the pre-packaged plan of reorganization were not satisfied and were not waived by Colt.

Sale agreement

Colt said current sponsor Sciens Capital Management LLC has agreed to act as a stalking horse bidder and has proposed to purchase substantially all of the company’s assets and assume secured liabilities and all liabilities related to existing agreements with employees, customers, vendors and trade creditors.

The proposed purchase price will consist of the assumption of the company’s senior loan, term loan and debtor-in-possession financing facilities, as well as the assumption of specified liabilities, executory contracts and leases.

The company said it intends for the sale to ensure a smooth and swift transition of the business with all of its brands, products and operations supported by a stronger balance sheet resulting from a significantly lower debt burden.

As part of the Sciens-led bid, Colt said it 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, 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.

Competing bids are due by 5 p.m. ET on July 30. If necessary, an auction would be held on Aug. 3.

Competing bids must exceed the stalking horse bid by at least $1 million. The minimum overbid amount at auction will also be $1 million.

“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,” chief restructuring officer Keith Maib said in the release.

The company intends to continue its normal business operations throughout the accelerated sale process, the release said. 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 chief executive officer Dennis Veilleux, will remain in place throughout the process.

DIP financing

In conjunction with the bankruptcy filing, Colt’s existing secured lenders have also agreed to provide $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 facility is comprised of a $6.67 million senior DIP loan and a $13.33 million term DIP facility.

The agent for the senior facility is Cortland Capital Market Services LLC, and the agent for the term facility is Wilmington Savings Fund Society, FSB.

Interest will be 12½%.

The DIP facility will mature on the earliest of 120 days after closing, the closing date of the asset sale, the effective date of a Chapter 11 plan and the date of acceleration of the loans.

The company is seeking interim access to $10 million of the DIP financing.

The company said the entire process is expected to be complete within 60 to 90 days.

Debt details

According to court documents, Colt has $100 million to $500 million in both assets and debt.

The company’s largest unsecured creditor is Wilmington Trust Co. of Guilford, Conn.., with a $260.94 million bond debt claim.

According to an 8-K filed with the Securities and Exchange Commission, the Chapter 11 filing constituted an event of default under the company’s credit agreement, term loan agreement and the 8¾% senior notes due 2017. As of Sunday, there was $35.1 million outstanding under the credit agreement, $86.9 million under the term loan agreement and $262.6 million under the notes indenture.

Colt said it believes any efforts to enforce the payment obligations are automatically stayed as a result of the bankruptcy filing.

Perella Weinberg Partners LP is acting as the company’s financial adviser; Mackinac Partners LLC is acting as restructuring adviser; and O’Melveny & Myers LLP is the company’s legal counsel.

Colt Defense is a West Hartford, Conn., manufacturer of firearms. The Chapter 11 case number is 15-11296.

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