Tough times ahead for iconic gun maker Colt Defense as it warns of possibly missing a $10.9 million payment to bondholders next year, something it nearly did last month until it got a cash infusion.
The company went down to the wire before securing sufficient funds to make its senior notes payment. Investment bank Morgan Stanley Senior Funding, Inc. loaned Colt $70 million, more than enough to cover the scheduled interest payment and pull the company out of a prior loan.
In yesterday’s filing with the Securities and Exchange Commission, which was delayed due to the secured notes issue, Colt warned that it is probable it won’t have enough cash and cash equivalents on-hand to meet the next obligated interest payment — another $10.9 million — to bondholders on May 15.
If the company does miss the payment, lenders may take action to secure their position as creditors and mitigate their potential risks.
In 2009, Colt issued the $250 million in unsecured notes, which bear interest at 8.75 percent and mature in 2017.
In 2014’s third quarter, Colt reported a net loss of $7.8 million, down from $11.3 million profit in 2013. Net losses nine months into 2014 come at $28.4 million, down from a $20.4 million profit in the same timeframe last year.
“We know we’re in the trough right now,” Dennis Veilleux, the company’s chief executive officer, said during the conference call to discuss third quarter results. But he said he’s confident that with a surplus of inventory, government contracts pulling through and the company fulfilling backlogged orders that business will eventually level out.
Although the decrease in demand for Colt’s commercial products such as AR-type rifles and handguns, and delayed government sales are blamed for poor third quarter results, a major concern for the company is a limited amount of cash and cash equivalents, and other liquid assets. At quarter end, it had roughly $4 million.
To mitigate the business risk associated with increase liquidity challenges, Colt said it will seek revenue growth across all sales channels; focus production schedule on its backlog of firm commitments; work closely with U.S. government regulators to obtain timely approval of international sales and seek ways to restructure senior notes to reduce overall debt service costs.
Also, the company said it will “execute initiatives designed to optimize our performance and reduce costs,” hinting at possibly restructuring the company, but spokesmen would not discuss that during the conference call.
In the meantime, Colt will be “cash neutral until year end,” said Scott Flaherty, company senior vice president and chief financial officer. Adding that the company will likely have similar trends in fiscal year 2015 as it has had in 2014.