Colt Defense, LLC followed through Wednesday with securing a $20 million — and up to $75 million — loan that would afford the company to maintain normal business operations during the chapter 11 bankruptcy process.
A federal bankruptcy judge approved the loan in a temporary order as the company continues to negotiate its bankruptcy plan with creditors. Also, the loan comes after pushback from creditors who have been fighting over the ownership of the company and the company’s debt.
The private equity firm Sciens Capital Management, which owns 87 percent of Colt and the company’s pick for first bidder on company assets, proposed buying the company along with all its obligations, except for the $250 million in bonds. But bondholders view Sciens as using its control of Colt to drain the company of much needed cash and created the need for a sale.
“Contrary to the (Colt’s) narrative presentation, Sciens is not a “white knight” savior; rather, it has long run Colt “for cash,” taking for itself all available cash flow and tax benefits and depriving the business of necessary (research and development) and (capital expenditure) funding,” attorneys of bondholders wrote in a motion on June 19 objecting to Colt’s plan.
But to ease the tension and provide leverage in negotiations, bondholders agreed to buy $37 million of Colt’s $358 million debt. Without it, bondholders would otherwise receive little in Colt’s restructuring process.
The debt buying also resulted in the judge allowing the loan to finance business operations, which would keep Colt afloat during the legal process.
Colt filed for chapter 11 bankruptcy protection on June 14 and said that it expects the process would last between 60 to 90 days, but because of the contention between creditors may extend the process.