Colt Defense LLC is expected to proceed with a prepackaged Chapter 11 bankruptcy following investors' rejection last week of its offer to exchange $250 million in junk bonds for $75 million in higher interest rate, junior secured debt.
The exchange offer is part of Colt’s strategy to restructure its balance sheet, which began with the refinancing of Colt’s $70.0 million senior secured term loan in November 2014 and $33.0 million senior secured term loan facility in February 2015. The Exchange Offer and the issuance of the new notes are designed to reduce the overall amount of Colt’s debt, reduce total cash interest payments, extend the maturity for the debt exchanged, and place Colt in a better position to attract new financing in the years to come. The company believes the offer will also improve customer relations by addressing the key issues relating to Colt’s viability as a going concern.
Colt extended the exchange offer for its junk bonds until midnight May 18 after investors holding just 5.1 percent of the bonds approved the offer by its initial May 15 deadline.
Colt is simultaneously seeking bondholder approval for a prepackaged Chapter 11 bankruptcy petition. In the event Colt decides to proceed with a prepackaged bankruptcy filing, it will continue to conduct its business and operations in the ordinary course. Moreover, trade creditors, vendors, and customers will be unaffected by the Prepackaged Plan and will continue to be paid in the ordinary course of business; union related agreements will also be unaffected and employees will be paid all wages, salaries and benefits on a timely basis.
