Colt hopeful exchange offer will win over investors on third try

Third time’s the charm? Colt Defense extends the deadline for creditors to exchange notes or vote in support of a pre-packaged plan for bankruptcy.

The extension was announced after the second deadline elapsed last night and the offer is now set to expire June 2 at 5 p.m. eastern time.

The exchange offer allows for investors to swap old notes set to payout at 8.75 percent interest in 2017 for new notes set to payout at 10 percent interest in 2023. But in order for the exchange to work, the company needs to account for 98 percent of the funds. Despite accounting for only a 5.65 percent of the outstanding principal as of May 18, Colt seemingly has high hopes.

Alongside the announcement, the company submitted an application to amend the terms for borrowing from investors. In addition to the change in interest rate and due date, the notes will no longer be registered under the Securities Act of 1933, which will reduce how much information Colt is required to disclose to investors and the public.

According to yesterday’s announcement, there will be restrictions on transferring and reselling of the new notes. However, the announcement suggests that if an investor who does swap old notes for new ones will also transfer restrictions or lack thereof.

Investors are understandably hesitant to accept the exchange and may see more value in the company’s assets. The depth of Colt’s financial troubles is bad but could be worse. The company failed to produce a quarterly report last month and also failed to make a $10.9 million semi-annual payment to investors due a couple weeks ago.

Colt anticipates revenue for the fiscal quarter ending April 5 to be $41.5 million, a decrease of $8.6 million from the year before, according to filings with the Securities and Exchange Commission.

Last week, the acclaimed Standard & Poor’s financial rating service issued both Colt’s debt and credit ratings to a “D” status, which is reserved for company’s on the brink of bankruptcy or officially declares it. S&P also gave Colt a recovery rating of “6,” meaning there’s a zero to 10 percent expectation of recovery in a default scenario.

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