Only 5% of bondholders joined Colt’s exchange plan, company extends deadline

Colt Defense today extended the deadline for bondholders to decide either to accept or reject a plan that would change the rate of bonds issued by the ailing gun maker.

Current investors still have the opportunity to exchange their secured notes set to expire in 2017 at 8.75 percent interest for new notes due to payout at 10 percent interest in 2023. The deadline has been pushed to May 18 at midnight eastern time.

By the original deadline, May 11, Colt accounted for approximately $12.7 million, or 5.1 percent, of the outstanding principal amount of the old notes. In the notice, the company said the notes had been “validly tendered and not validly withdrawn.”

Also, Colt proposed that the new notes not be registered under any state security law or the Securities Act of 1933, which requires companies that issue securities to the public to disclose financial information.

The pre-packaged plan is the brainchild of Colt working with Mackinac Partners. Colt retained the services of the financial restructuring firm in March for $150,000 per month for an unspecific amount of time.

However, the new deadline is not set in stone. For the plan to restructure debt and possibly avoid bankruptcy to succeed, it needs 98 percent approval by investors. Colt described three set paths involving the exchange offer for the near future. If the company gets enough support before the deadline, it will enact the plan; if investors vote the plan down, the company will seek an alternative option; and if investors fail to participate then Colt will extend the deadline to a later date.

If bankruptcy is the future, any plan Colt wants to follow will need the the approval of current bondholders.

The Connecticut arms maker has been heading in that direction most notably since November 2014, when it almost missed a semi-annual payment to bondholders. It has since been swapping debt for debt in order to make necessary payments.

In May, Colt failed to deliver annual financial statements, which are required per terms of a loan agreement by the issuer. The company waived the rule, citing miscalculations with employee retirement pensions.