Colt Defense LLC indicated last week in a filing with the US Securities and Exchange Commission that the company may default on a $10.9 million loan payment due this week. According to the Wall Street Journal, the gun maker was scheduled to make the payment to bondholders on Monday, but has a grace period until December 15 to pay out. If the company does not, it will be in default.
“The Company does not have sufficient funds to repay all of its debt upon an actual acceleration of maturity,” the filing, which was obtained by the Hartford Courant, states. “Lenders would likely take actions to secure their position as creditors and to mitigate their potential risks. These conditions would adversely impact the Company’s liquidity, and raise substantial doubt about the Company’s ability to continue as a going concern.”
It is bad news for Colt, especially after the company reunited with its civilian market branch, Colt’s Manufacturing Company, just earlier this year. The gun maker estimated that its operating income for the past quarter was down as much as 60 percent thanks to weak demand for commercial products and delays in sales to the US government. Bonds, as of last week, were trading as low as 30 cents on the dollar and it is expected that even if the company was able to pay bondholders in time, it will be likely for Colt to violate a $48.1 million term-loan agreement before the end of the year.
If Colt does default, there is a chance that creditors will demand immediate payment, causing the company to liquidate its assets and file for bankruptcy.