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Colt Defense Warns It Could Default


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Found this today, Colt Defense warns it could default:

 

http://online.wsj.com/articles/gun-manufacturer-colt-warns-of-possible-default-1415892942

 

By
Stephanie Gleason
Updated Nov. 13, 2014 5:15 p.m. ET

Colt Defense LLC warned that it could default by the end of the year, as the privately owned company, which has suffered from declining demand for rifles and handguns, is likely to miss a payment to bondholders.

The gun maker faces a $10.9 million payment to bondholders Nov. 17, according to a filing on Wednesday with the U.S. Securities and Exchange Commission. If Colt skips the payment, it will enter a 30-day grace period, but without payment by Dec. 15 it will be in default and bondholders can demand immediate, full payment.

Colt, which is controlled by investment firm Sciens Capital Management LLC, had $248.8 million outstanding on the bonds as of June 29. The bonds were trading in the mid-30 cents on the dollar—deep in distressed territory—on Thursday.

Sciens declined to comment.

Colt, which has been manufacturing firearms and supplying the U.S. military since the mid-1800s, isn’t alone in grappling with weak demand, especially for sporting rifles. Smith & Wesson Holding Corp. reported a 46% drop in operating income for its latest quarter. And Cerberus Capital Management LP-owned Freedom Group, which owns the Remington Arms and Bushmaster brands, was recently downgraded by Moody’s , which cited pressure on earnings and revenue amid demand volatility.

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Colt faces a $10.9 million payment to bondholders Nov. 17. Zuma Press

Even if Colt is able to pay bondholders in time, it is “probable” that Colt will violate a $48.1 million term-loan agreement by Dec. 31 without an amendment or alternate financing, the company said. It added that it is in discussions with existing and potential lenders over the situation.

Lenders amended the agreement earlier this year, allowing Colt to skip three $1.9 million payments through March 2015.

Colt, which is based in West Hartford, Conn., and Kitchener, Ontario, declined to provide any additional information Thursday.

The company revealed its financial woes in Wednesday’s SEC filing to explain why it couldn’t file a quarterly financial report on time. Colt said it is down to $1 million in availability on its revolving credit facility and is still “working through accounting considerations and liquidity concerns.”

The gun maker said it expects to report a 50% to 60% decline in operating income for the quarter ended Sept. 28, compared with the year-earlier period. It also expects to swing to an operating loss for the first nine months of the year. Colt blamed its financial troubles on market trends including declining consumer sales of rifles and handguns and delays in sales to the U.S. government.

Colt was cut deep into junk territory by both Moody’s and Standard & Poor’s in recent months. Each rating firm maintains a negative outlook on the company. In the event of a default, S&P said in September that it expects bondholders to recover no more than 10% on the debt.

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Nope, its all one company. In 2002 Colt split into two companies. Colt manufactuering, which made products for the civilian and LEO markets and Colt Defense LLC, which handled military contracts. However, last year ( 2013) Colt Defense aquired Colt Manufactuering and reunited the two companies.  This was done to avoid problems with licensing agreements which were set to expire in 2014.

Colt has been one of the most mis-managed companies in the world for many years. Going back to a 5 year long strike by union workers in the 1980s, Then major quality control issues in the late 80s and early 90s caused by poorly trained replacement workers. 1998 then CEO Ron Stewart made a public statement favoring mandatory licensing and training for gun owners leading to a boycott. Then the mistake of all mistakes was hiring Retired Marine LT. General Willian Keys as CEO who ran the company into the ground. (2002-2010). Along the line, Colt excutives decided to forgo R&D for civilian products in favor of concentrating on Military Contracts which they eventually lost. 

Colt was banking on three products keeping them afloat. The Single Action Army revolver, the 1911 pistol and the AR-15/M-16 rifles. Of course now everybody and their brother are making these guns AND selling them cheaper. So Colt put all their eggs in one basket, then lost the basket.

I do love my Colts and would be saddened to see such a historic company go under. But they brought it on themselves.

 

 

 

 

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      I wish they would start making double action revolvers again, or double stack 1911s. Colt just hasn't been progressing and innovating until recently with their Mustang 380 and Defender series. They are counting on their singles action revolvers, which will never make much money for Colt and their 1911, which every gun manufacturer in the world makes. If Colt fails it is not due to poor quality but poor management.  

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Colt's situation is currently being discussed on a number of boards right now. One of the most common comments is that people think Colt should start making DA revolvers again. I'd love to see it, but the fact is that it can't happen. One of the main reasons Colt quit making DA revolvers was that the machines and tooling used to build them was worn out. Colt either didn't have or didn't want to invest the money in new machines. Most of the old machines have been sold off.  Not to mention that those guns required a lot of hand fitting and all the skilled craftsmen who used to assemble them are long gone. 

 

There is a good bit of speculation that Colt will be bought by some large corporation and be revived. Hopefully in some place other than anti-gun and overly taxed Connecticut, which has also been one of Colt's major problems. I, for one, would like to see that happen. But, even if it does happen, this "New" Colt will be a completely different company. The Colt that we all knew and loved would be gone forever. 

 

 

 

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One of the most common comments is that people think Colt should start making DA revolvers again. I'd love to see it, but the fact is that it can't happen.

http://www.gunsholstersandgear.com/2013/10/22/colt-re-introduce-double-action-revolvers/
Sounds like it can.

I work in machining; we can make anything and we can make the best in the world. We just can’t (nor can anyone else) make the best and make it cheap. A Python target market wouldn’t be price buyers. With S&W at or over $1K for their high end revolvers the market is obviously there.

Gunsmiths can be trained just like we train Machinists, Mold Makers and Die Makers; we don’t have as many, but we can still train the best. Advances in CNC machine tool accuracies coupled with technologies like EDM, CNC grinding and laser; can reduce hand fitting.
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http://www.gunsholstersandgear.com/2013/10/22/colt-re-introduce-double-action-revolvers/
Sounds like it can.

I work in machining; we can make anything and we can make the best in the world. We just can’t (nor can anyone else) make the best and make it cheap. A Python target market wouldn’t be price buyers. With S&W at or over $1K for their high end revolvers the market is obviously there.

Gunsmiths can be trained just like we train Machinists, Mold Makers and Die Makers; we don’t have as many, but we can still train the best. Advances in CNC machine tool accuracies coupled with technologies like EDM, CNC grinding and laser; can reduce hand fitting.


Unfortunately all that technology requires capital investment. With a $250M debt hanging over the company and a current inability to make the interest payment, that's not going to happen. Bankruptcy followed by restructuring might be the best solution at this point.
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I don't have a dog in this fight, as I quit buying guns for the name on them years ago.  There are just too many quality firearms out there at competitive prices and a lot of buyers today don't give a hoot about tradition.  All of the big names have made marketing and design mistakes.  But one that stands out is Colt's investment in commemorative editions.  I don't know how many Colt collectors are out there but evidently there aren't enough to keep the lights burning in Hartford.  Frankly, I got tired of seeing the John Wayne this and the World War II that.  There were enough Centennial models issued that it would take another 100 years to buy them all.  I'm the basic kind of gun owner--one who wants a good working design at a reasonable price.  Just because it has a new bell or whistle on it in a different caliber is not enough to get me into the arms race.  If the industry can't come up with a more economical way of keeping us supplied in ammo, I'm not really interested in buying more safe queens.

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Yup, hard to see how a firearms company is doing bad right now.  Sales have been up over the past couple years.  Sure that was a surge but I am sure they are still near normal levels.

Also as said above, make .22 ammo since it is out of stock in most places still.

 

Kinda like a bar losing money selling beer.  It is kinda hard to do.

Edited by vontar
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Update, looks like new financing:

 

http://www.heraldonline.com/2014/11/17/6537937/colt-defense-llc-enters-into-new.html?sp=/100/773/385/

 

Colt Defense LLC Enters into New $70 Million Senior Secured Term Loan Facility

November 17, 2014 Updated 1 hour ago

 

WEST HARTFORD, Conn. — Colt Defense LLC (the “Company”) announced today that it has entered into a new $70 million senior secured term loan facility with Morgan Stanley Senior Funding Inc. (the “MS Facility”). Proceeds from the MS Facility will be used to repay all amounts outstanding under the Company’s existing term loan agreement dated as of July 12, 2013 and provide additional liquidity, including to allow the Company to make the $10.9 million interest payment due November 17, 2014 under the indenture governing its existing senior notes. The credit agreement governing the MS Facility (i) does not contain financial covenants or amortization provisions similar to those provisions in the Company’s existing term loan agreement; (ii) provides for the accrual of interest on an 8% cash and 2% payment-in-kind basis; and (iii) will mature no later than August 15, 2018 subject to the satisfaction of certain conditions. The lenders under the Company’s existing credit agreement dated as of September 29, 2011 (the “ABL Credit Agreement”) have also agreed to amendments to the ABL Credit Agreement necessary for the Company to enter into the MS Facility. The Company believes that the MS Facility will provide it with the time and flexibility necessary to support its medium and long term objectives.

 

About Colt Defense LLC

Colt is one of the world’s oldest and most renowned designers, developers and manufacturers of firearms for military, personal defense and recreational purposes. Our founder, Samuel Colt, patented the first commercially successful revolving cylinder firearm in 1836 and, in 1847, began supplying U.S. and international military customers with firearms that have set the standards of their era. The “Colt” name and trademarks stand for quality, reliability, accuracy and the assurance of customer satisfaction. Our brand and global footprint position us for long-term growth in a world market that offers continued opportunities in all of our sales channels: military, law enforcement and commercial. We operate from facilities located in West Hartford, Connecticut and Kitchener, Ontario, Canada. More information on Colt Defense LLC is available at www.colt.com and www.coltcanada.com.

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I stumbled into this as well, its a great read even though its on Bloomberg's Business week rag:

 

http://www.businessweek.com/articles/2014-05-29/colts-curse-gunmakers-owners-have-led-it-to-crisis-after-crisis#p1

 

Why Colt Can't Shoot Straight
By Paul M. Barrett May 29, 2014
 
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Illustration by Steph Davidson

The Connecticut River region has supplied the U.S. with firearms since before it was a nation, and some of the best-known names in the industry remain in what’s known as Gun Valley. Smith & Wesson (SWHC) operates from a fortress-like building in Springfield, Mass. Sturm Ruger (RGR) has its headquarters in Southport, Conn. Colt, the most famous of all the New England small-arms manufacturers, still makes handguns and rifles at a 22-acre facility in West Hartford. A giant blue sign with the company’s familiar “rampant Colt” rearing horse insignia marks the entrance.

Decorating the lobby of the Colt administrative building is a series of framed documents testifying to the gunmaker’s influence. Here’s a record of William F. “Buffalo Bill” Cody’s purchase of a Colt Peacemaker on Aug. 17, 1883. George S. Patton Jr., just beginning his rise up U.S. Army ranks, bought a .38 revolver on May 18, 1912. Generations of American officers carried versions of the Colt .45 pistol into battle in World War I, World War II, Korea, and Vietnam—an extraordinary span of service for a weapon introduced during the American occupation of the Philippines. Later, Colt made the M16 rifles GIs took into the dense jungles of Vietnam and the compact, swift-firing M4s that have accompanied U.S. soldiers to the deserts of Iraq and Afghanistan. John Wayne, Clint Eastwood, and Bruce Willis have all brandished Colts on the big screen, as did Captain John Miller (Tom Hanks) in Saving Private Ryan. No manufacturer has put more firearms in more American hands over a longer period of time.

In the Colt factory, a short walk from the reception area, rows of hulking machines, some computer-controlled, others surprisingly antiquated, hum with activity. The chemical scent of lubricants hangs in the air. Mike Magouirk, the company’s chief operating officer, points out a pair of women in safety glasses assembling pocket-size .380 Mustang pistols. “Reintroducing Colt commercial handguns is a big priority,” he says. “These models haven’t been as available as we wish they had been during the past few years when demand was so high.” Another assembly line produces the latest offspring of John Browning’s 1911 design—a .45 “close quarter battle pistol” for the U.S. Marine Corps. “This is a point of pride, because it’s our franchise from way back,” says Magouirk, an ex-marine. Sales of the AR15, a civilian semiautomatic version of the Colt military rifle, have been soft in recent months, he says, even though it has won over former critics of the company. Magouirk’s excited to talk about the latest iteration of the M4. He points out some crates marked “UAE” that fill the loading dock: rifles headed for the United Arab Emirates. “The M4 is the envy of the world,” he says.

He’s not exaggerating. In addition to forces in the U.S. and U.A.E., militaries in Canada, Malaysia, and scores of other countries use versions of the rifle. And yet despite high regard for the M4 and a growing consensus that the company has put some of its quality-control problems behind it, Colt, owner of one of the best-known brands in firearms—or any industry—finds itself again on the edge of financial disaster. It showed a net loss on declining sales for the first quarter of 2014, and its long-term bonds merit junk ratings from Standard & Poor’s (MHFI) and Moody’s (MCO). “Colt’s very weak credit measures, if they persist, could make refinancing difficult for the company when its bonds mature in 2017,” S&P said in an April 1 analysis.

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For historians, collectors, and even some investors, it’s a sorry kind of déjà vu, as Colt has been haunted by commercial crisis for many of its 178 years. In particular, the past decade has been dominated by some dubious financial engineering and accumulation of a daunting debt load. Adding insult to injury, lawsuits filed by two former senior Colt executives, scheduled for trial in September, threaten to air allegations of a front office tainted by racism and homophobia.

“The pattern at Colt has been consistent for decades, dysfunction and more dysfunction,” says Cameron Hopkins, an industry consultant and former editor-in-chief of Firearm Marketing Group, publisher of the magazines American Handgunner and GUNS. Colt “always seems to be on the brink,” agrees Richard Feldman, president of the Independent Firearm Owners Association, an advocacy group. “It’s like some kind of weird curse.”
 
 
Handgun pioneer Samuel Colt got off to an unpromising start. Born in Hartford in 1814, the mechanically inclined young man returned from a stint as a seaman’s apprentice inspired by the captain’s wheel, or so the story goes, to devise an improved sidearm. The user of Colt’s repeating revolver did not have to manually rotate the ammunition cylinder around the barrel. Pulling back the hammer also turned the cylinder.

 

Why Colt Can't Shoot Straight
By Paul M. Barrett May 29, 2014
 

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For all their ingenuity, Colt’s early guns didn’t always work. The company he started in 1836 went bust six years later. He kept tinkering, though, and received encouragement from Captain Samuel Walker of the Texas Rangers. When war with Mexico broke out in 1846, the U.S. government ordered 1,000 “Walker Colts.” Having by now mastered the use of interchangeable parts, Colt built a state-of-the-art factory in his hometown. In 1860 he introduced a new Army Model revolver—just in time for the Civil War.

Financially, however, Colt displayed a reckless streak. He pursued government contracts regardless of profit margins and ran up enormous bills entertaining politicians with liquor, cigars, and other amusements. When he died at age 47 in 1862 of rheumatic fever, he didn’t leave the sort of solid corporate foundation his inheritors might have wished. Crucial patents expired; imitators encroached. Fortunately for the company, if unfortunately for American Indian populations, these challenges were eclipsed by the westward push of European-descended settlers. Introduced in 1873, the Colt Peacemaker became “the gun that won the West.”

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An early master of illustrated brochures and celebrity endorsements, Colt bequeathed far more than influential gun designs, according to biographer William Hosely. “What Colt invented,” Hosely wrote, “was a system of myths, symbols, stagecraft, and distribution that has been mimicked by generations of industrial mass marketers and has rarely been improved upon.”

After its innovative initial phase, the Colt company focused on producing large volumes of weapons designed by others—notably Browning’s .45 semiautomatic pistol, which replaced the revolver’s rotating cylinder with a spring-loaded ammunition magazine. Colt churned out similarly huge numbers of the Vietnam-era M16 rifle, also based on an outsider’s design.

In the 1970s, Colt and other American gunmakers, following the bad example of Detroit’s Big Three automakers, grew smug and lazy. Like Japanese and German car companies, more nimble foreign gunmakers grabbed market share. By the 1980s, Smith & Wesson had lost the U.S. police to Austria’s Glock, while Colt saw Italy’s Beretta snatch its main U.S. Army sidearm contract. In 1985, Colt plant employees who belonged to the United Auto Workers launched a protracted strike for higher pay. Replacement employees weren’t up to the task, and “quality suffered badly,” says Feldman, then an organizer for the National Rifle Association. In 1988 the Pentagon gave Colt’s M16 contract to FN Herstal of Belgium. Four years later, Colt filed for bankruptcy court protection from its creditors. “With the end of the Cold War,” says Hopkins, the firearms marketer, “it seemed like the company might never recover.”
 
 
Colt’s unlikely rescuer materialized in the person of Donald Zilkha, scion of a wealthy Manhattan family of Iraqi immigrant bankers. Zilkha’s parents, Ezra and Cecile, hosted galas for the Metropolitan Opera. Ezra confessed in his 1999 memoir, From Baghdad to Boardrooms, that until Donald was 13, he was dressed each morning by a governess nicknamed “Nursie.” The Zilkhas were not “gun people.”

By the 1990s, Donald, then in his 40s and working at the family investment firm Zilkha & Co., yearned to emerge from his father’s shadow. He did just that by buying Colt’s Manufacturing in 1994 for the fire sale price of $27 million, plus assumption of liabilities. The media suddenly cared what the younger Zilkha had to say. Colt, he told the Hartford Courant, “has been neglected for so long.” He would save it by means of austerity. Assuming the post of chairman, he consolidated from its original, onion dome-topped facility to the more efficient, if more prosaic, plant in West Hartford. At a company that employed 15,000 at its peak in World War II, Zilkha slashed the workforce by a third, to 600. He brought in as chief executive officer a former auto industry executive.

Zilkha may not have known anything about guns, but he had ambitious plans to use Colt as a vehicle for rolling up other small-arms manufacturers. “This is an industry in dire need of consolidation,” he told the Wall Street Journal in 1997. He set his sights on FN Herstal, the company that nine years earlier had taken away Colt’s M16 contract with the Pentagon. Acquiring the Belgian company, he told the Journal, “would create a dominant firearms manufacturer worldwide.”

 

His reach exceeded his grasp. Belgium announced in November 1997 that rather than permit an American takeover, it would nationalize FN Herstal. Zilkha’s rollup stalled, and the would-be industrialist was stuck with the down-on-its-luck gun company he had purchased in the first place. Via e-mail, he declined to comment on this episode.

No gunmaker has put more firearms in more American hands over a longer period of time

Complicating matters, Colt then blundered into the vortex of American gun-control politics. In a December 1997 editorial in American Firearms Industry magazine, Zilkha’s handpicked CEO, Ron Stewart, made a pair of proposals that set off alarms in Second Amendment circles. He urged “the creation of a research and development program to further firearm technology toward more advanced methods that promote safety (such as personalized firearms).” And he recommended that Congress require gun owners to obtain a federal permit. “All hell broke loose,” says Feldman.

In the eyes of gun rights activists, mandating a federal permit constituted a step down the slippery slope toward gun bans and confiscation. Personalized firearms, also known as smart guns, are viewed with equal suspicion because of fear that the government could remotely deactivate digital weapons. Colt at the time was developing a pistol called the Z40, which had a microchip that allowed it to fire only after receiving a signal from a corresponding chip in a wristband worn by an authorized user.

“We saw it as a threat,” says Alan Rice, an NRA-certified instructor active with the New Hampshire Firearms Coalition. “The smart gun was a way for gun controllers to move toward mandating firearms the government could monitor.” At an NRA convention in Philadelphia in June 1998, Rice and others circulated fliers urging a boycott of Colt. “They created a lot of ill will,” he says, “and we helped them see their mistake.”

Zilkha relieved Stewart of his CEO duties in late 1998; by the following year the Colt smart gun was dead. In 1999, Zilkha named a new CEO, William Keys, a retired three-star Marine Corps general. The company announced it would end production of all but a handful of civilian handguns and focus on military production. As a reporter at the Wall Street Journal during this period, I interviewed a memorably glum Zilkha. He complained that on top of his other problems, he felt unfairly targeted by gun rights activists who criticized his past contributions to Democratic New York Senator Charles Schumer, a vocal proponent of stricter gun control. When I suggested to Zilkha that he seemed to regret ever having entered the gun business, he didn’t argue.
 
 
Colt got a new lease on life after Sept. 11. By the time of the 2001 terrorist attacks, the closely held company had atrophied to fewer than 500 employees generating only $50 million in annual sales. After subtracting its costs, Colt lost money in 2001. Keys, a gruff, highly decorated veteran of Vietnam and the first Gulf War, set out to persuade his ex-colleagues at the Pentagon to keep Colt alive. “The General,” as he was known, kept his pit bull, Jenks, chained to a chair in his office. He showed little interest in civilian sales and disdain for the abortive smart gun championed by Zilkha. When the owner wasn’t around, the General referred to Zilkha as “little Donald,” according to former Colt executives.

Disrespected at his own company and distracted by a 2002 divorce that received lurid Page Six treatment in the New York Post, Zilkha began retreating from the gun business. Into the vacuum stepped Ioannis Rigas, a more junior banker at Zilkha & Co. who handled much of the oversight of Colt. A globe-trotting Greek native also known as John, Rigas formed his own Manhattan-based firm, Sciens Capital Management, which had investment interests in Athens and London. Rigas viewed the gun company as a financial play he could exploit. He didn’t respond to interview requests made with Colt and Sciens.

In late 2002, Rigas arranged for the spinoff of the military business into a separate company called Colt Defense. After the dust settled, Sciens Capital and its affiliates controlled the defense company, although Zilkha retained an ownership interest. The withered commercial handgun business—by now reduced almost exclusively to producing copies of classic handguns—was left behind under the name Colt’s Manufacturing. The two companies shared the West Hartford factory. To the consternation of workers, a metal fence was erected to denote the corporate split.

 

With American forces streaming toward the Middle East, Colt Defense’s sales began to grow, hitting $75 million in 2004. Rigas hoped the improved wartime performance would allow him to cash out by means of an initial public offering, according to a 2005 company filing with the Securities and Exchange Commission. Potential investors, however, weren’t impressed. Colt Defense depended heavily on the whims of margin-sensitive Pentagon budget officials. Even as overall war spending rose, the company notched only a $10 million profit in 2004—not exactly Wall Street catnip. Rigas never pulled the trigger on the IPO.

“They created a lot of ill will, and we helped them see their mistake”

Over the next several years, Colt Defense went through the private equity leverage wringer. Sciens Capital and its affiliates loaded the company with debt while taking out cash in the form of “distributions” and “advisory fees.” The 2005 SEC filing shows payouts totaling $40 million over the two prior years—a significant amount for a company in such fragile financial health. In 2006, another SEC filing shows, the company redeemed “members’ equity” worth $41 million. In 2007, Colt Defense agreed to borrow $150 million in a “leveraged recapitalization” that featured distributions to “members” of $131 million. In 2009 it borrowed an additional $250 million, while multimillion-dollar payouts continued. For 2010, Colt Defense had sales of $176 million—more than double what they were in 2004—but registered an $11 million loss. “You didn’t have to work at Colt Defense to know it had put itself in a dire situation,” says Merrick Alpert, a Connecticut businessman who began advising the shriveled remains of Colt’s Manufacturing in late 2010 and later became its senior vice president.

Among other failings, the severed halves of Colt somehow missed the post-2008 “Obama surge” as much as other U.S. gun manufacturers. Whipped up by NRA warnings that the Democratic president intended to toughen gun control, consumers cleared gun store shelves of ammunition and weapons. Better-prepared manufacturers such as Glock saw sales rise sharply. Under the terms of the Colt split, however, Colt Defense could reach the booming civilian market only by first selling its rifles to Colt’s Manufacturing, a debilitated company with sclerotic lines of distribution. Colt’s Manufacturing, for its part, offered only a limited selection of the handguns so much in demand.

Turmoil reigned in the Colt administrative building. Zilkha retained an equity stake in the civilian arms company, but in practical terms he “had no control or influence over” it, according to a lawsuit Alpert brought against Colt’s Manufacturing after his firing in 2012. Rigas and Sciens Capital controlled both Colt Defense and Colt’s Manufacturing, according to the suit. The Colt’s Manufacturing board rarely met “and was not a functioning entity.” When Alpert mentioned Zilkha’s name to Rigas, “Rigas simply laughed dismissively.”

As bitter as their relationship had become, Rigas and Zilkha collaborated in 2012 on a mutually remunerative recombination of the Colt companies. The transaction reversed the separation of a decade earlier. After borrowing an additional $50 million, Colt Defense paid $60.5 million to acquire Colt’s Manufacturing. In effect, the feuding Zilkha-Rigas team paid itself, along with other investors, to put the civilian arms company back together with the defense branch. In the process the merged company’s debt rose to more than $300 million, and its balance sheet showed a deficit of $137 million. Workers took down the fence running through the plant in West Hartford.

Asked to explain these convolutions, Jeffrey Grody, senior vice president and general counsel of the combined company, says: “The board saw an opportunity to create value for shareholders” by splitting in 2002, and then, in 2012, Colt Defense “saw benefits to reuniting.” The merger received a tepid response from outside financial experts. S&P analyst Christopher Denicolo told Bloomberg News last July that the company lacked sufficient revenue to pay off its long-term bonds on time. He warned that investors such as Pacific Investment Management and Chicago Title Insurance could see their holdings default.
 
 
In the face of what looks like an acute crisis, the mood in the Colt corporate suite seems oddly blasé. Grody shrugs off questions about the debt load. “The company has a lot of debt on its balance sheet,” he acknowledges. “At the appropriate point, it will be taken out and replaced” in a refinancing. In 2013, he notes, the recombined company reported a 30 percent increase in sales, to $278 million.

 

Others are less sanguine. S&P projects that company revenue will fall by 5 percent to 15 percent in 2014. It cites “declining commercial rifle sales as demand returns to more normalized levels following a surge in recent years” and a sharp reduction in Pentagon demand for new M4 rifles following the end of the wars in Iraq and Afghanistan. “The government’s plan to shrink the size of the Army also poses a threat to long-term demand for the rifle,” S&P notes. On May 14, Colt reported that revenue for its first quarter of 2014 slumped 22 percent, to $50 million. The company suffered a loss of $7.8 million for the period. During an investor conference call, CEO Dennis Veilleux said, “I’m not pleased with these results.”

He’s not likely to be any more pleased with a trial scheduled to unfold in state court in Hartford late this summer. Alpert and Carlton Chen, a former general counsel at Colt’s Manufacturing, are pressing twin lawsuits against the combined company. The plaintiffs seek millions of dollars in “change-of-control” benefits they claim they’re owed after they were fired in the midst of the merger. On April 9, Judge Carl Schuman issued interim rulings offering Alpert and Chen reason for optimism. Schuman called the plaintiffs’ pretrial testimony credible and ordered Colt to set aside $3.8 million as a “prejudgment remedy,” in case the company loses at trial.

The money might turn out to be the least of Colt’s worries in the suit. Chen, who is of Chinese descent, alleges the company was rife with ethnic hostility and homophobia, a potentially dangerous accusation for a manufacturer that relies heavily on federal contracts and could find itself the object of congressional scrutiny.

In a related complaint filed with the Connecticut Commission on Human Rights, Chen says he learned that General Keys referred to him in July 2012 as “that old Chinese f-‍-‍-‍-‍-.” Another executive referred to Chen as “the Yellow Peril,” the complaint alleges. Keys derided others as homosexuals, according to Chen. In February 2012, during talks about the merger, the General allegedly said, “Mark my words, before this thing is over, those f-‍-‍-‍-‍-‍- queers Rigas and Zilkha will be walking down the aisle holding hands together.”

Keys, who lives in Virginia, stepped down as CEO of Colt’s Manufacturing in 2013 and had been replaced as chief executive of Colt Defense three years earlier, according to legal filings. His lawyer, John Droney, said via e-mail: “General Keys has no comment at this time except to say we look forward to a jury trial where the truth will come out.”

In court papers, Colt and Keys denied all of Alpert’s and Chen’s accusations. The company and Keys accuse the former executives of “improper and illegal self-dealing”—allegations the plaintiffs deny. Grody, the current general counsel, declined to comment on the litigation. Contacted via e-mail, Zilkha later said: “I resigned from the board of Colt Defense in 2006 and hold a minor interest in the business. I have had no role in operating or advising the company for quite a long time. I have no role in Colt’s Manufacturing, in which I no longer hold any ownership stake.”

Other gun industry veterans look at Colt and shake their heads. “I don’t know what it is about them—they just can’t get their act together, and this is not anything new,” says Paul Jannuzzo, an independent consultant based in Savannah, Ga. He headed Glock’s U.S. subsidiary from the early 1990s through 2003. During that period, the Austrian handgun maker didn’t bother to keep up closely with what Colt was doing, because the Connecticut company wasn’t a competitive threat, he says.

Despite that, Jannuzzo continues, Colt retains a place in the hearts of many American gun owners. “For logo recognition, historical fame, and brand status, I would take Colt over any other name,” he says. “Perhaps Colt should just leave the Connecticut Valley and change their karma.”

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Technically they are two separate companies. Colt Defense only does the military contracts.

 

Technically they are two separate companies. Colt Defense only does the military contracts.

Looks like they reunited in 2013

 

"Colt Defense LLC reunited its military and civilian handgun businesses in July 2013 with a $60.5 million acquisition of Colt Manufacturing Co., a decade after they were split apart. At the time of the merger, it was carrying $250 million in debt."

They also got a 70 million dollar loan

http://www.courant.com/business/hc-colt-defense-west-hartford-connecticut-new-loan-20141118-story.html

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