Colt Defense LLC has narrowly avoided defaulting on its loan payments after securing a $70 million loan with a Morgan Stanley affiliate. The new senior secured term loan will allow the gun maker to make $10.9 million in loan payments, which was due on Monday but the company had a grace period until December 15 to pay out. In a press release, Colt stated that it believes the new loan “will provide it with the time and flexibility necessary to support its medium and long term objectives.”
Colt indicated that it was at risk of defaulting earlier this month, which could have had severe consequences for one of the world’s oldest and most well-known gun makers. The agreement with Morgan Stanley breathed new life into the company’s coffers, raising bond prices back to 55 cents as of Tuesday. The $70 million loan also means that Colt will be able to satisfy its $48.1 million term loan agreement by the end of the year. If the company did default on its loan payments, creditors could demand immediate payment, causing the gun maker to liquidate its assets and file for bankruptcy. According to the Wall Street Journal, credit-rating company Standard & Poor’s estimated that bondholders would have recovered only about 10 percent of the debt in that scenario.
Colt is still expected to report a 50 to 60 percent decline in operating income for the last quarter compared to the same time period in 2013. The company is also expecting an operating loss for the first nine months of 2014 as well, and bond prices were as low as 35 cents last week. This is believed to be caused by a low demand for civilian market products as well as delays in sales to the US government. Nonetheless, the gun maker reassures customers that the Colt brand still stands “for quality, reliability, accuracy and the assurance of customer satisfaction.”
Colt is based in West Hartford, Connecticut and maintains a facility in Kitchener, Ontario, Canada that supplies the Canadian government with C7 rifles and C8 carbines.