Colt Defense LLC has lined up financing from secured lenders and some landlords and equity investors for a prepackaged Chapter 11 bankruptcy plan ahead of a potential default on a $10.9 million payment due bondholders June 15, but said its unsecured bondholders have continued to overwhelmingly reject the plan.
Colt said failure to get buy in from bondholders could force it into bankruptcy court without a prepackaged plan, greatly lengthening its turnaround during a challenging period for the firearms industry.
Colt disclosed June 2 that it had entered into a “restructuring support agreement” that calls for lenders behind its $35.0 million senior secured term loan facility and $72.6 million senior secured term loan to provide funds needed to implement a prepackaged plan of reorganization in federal bankruptcy court if Colt decides to pursue that option. It also sets terms for debtor-in-possession (DIP) credit facilities totaling $15 million as well as exit financing that would kick in upon completion of the prepackaged bankruptcy. Colt would use the plan to restructure all amounts outstanding under the existing secured term loan facility and senior secured term loan and the DIP Facilities.
Colt disclosed that it has also obtained an indication that the landlord of its West Hartford, CT facility will, subject to certain conditions, extend Colt’s existing lease for up to five and a half years from the lease’s existing expiration date upon the Prepackaged Plan becoming effective. In addition, Colt has received an indication from certain of its equity holders that they will consider providing an additional equity investment in Colt upon the effectiveness of the prepackaged plan.
The company extended its June 2 deadline on an exchange offer to its bond holders another 10 days after announcing the agreement. Bondholders now have until June 12 to swap unsecured bonds with a face value of $250 million for new bonds with a face value of $75 million, or risk receiving less should Colt file for bankruptcy. Colt has extended the deadline for the offer twice since launching it April 14 in a bid to cut its interest payments amid a liquidity crunch. The company has until June 15 to pay bondholders $10.9 million in interest or risk default, which would entitle bond holders to demand immediate payment for all interest and principal due.
Colt said June 2 that while it remains in discussions with various bondholders, only 5.9 percent had tendered their bonds by its second deadline, which expired June 2.
If Colt decides to file a Chapter 11 bankruptcy petition, it would continue to pay trade creditors, vendors, and customers regardless of bondholder support. Union related agreements would also be unaffected and employees will be paid all wages, salaries and benefits on a timely basis.
Going concern language added
In a separate action, Colt also filed an amended 10Q that showed that rather than earning net income of $12.6 million and $12.5 million for the three and six months ended June 29, 2014, it actually generated a net loss of $12.6 and $20.5 million. The company said the error did not affect the adjusted EBITDA numbers it originally published for the quarter. Colt has yet to file its 10Q for the fourth quarter of fiscal 2014 or the fiscal first quarter ended April 5.
“The matters discussed above raise substantial doubt about the company’s ability to continue as a going concern,” the company states in its amended 10Q. “The company’s ability to continue as a going concern will be dependent upon its ability to complete asset sales, restructure or refinance existing debt, obtain modifications or waivers of our loan covenants or other actions.”
