On September 3, 2015, gun maker Colt Defense announced that the company and its creditors are close to finalizing a deal that will rescue the company out of bankruptcy. “It’s fair to say the parties are very close to a deal,” Colt lawyer John Rapisardi told the U.S. Bankruptcy Court in Wilmington, Delaware. Rapisardi said that the economic terms of the agreement are generally agreed upon and that he expects the parties to reach a deal within a few days’ time.
Colt filed for chapter 11 bankruptcy-court protection on June 14, 2015, in the face of falling sales and a heavy debt burden. For months, the company has been plagued by a series of business woes, including the loss of military contracts, falling consumer sales, and litigation costs from a merger-related lawsuit.
Struggling with a dwindling market share and the myriad of afflictions that follow, Colt headed into bankruptcy with a plan to sell the company to its private equity owner, Sciens Capital Management, which plan bondholders claim would have put Sciens in control while paying them virtually nothing. Bondholders proposed their own plan which would exchange a substantial portion of the bond debt for control of the company.
Colt has until September 30 to submit an agreed plan. If the deal falls through, Colt faces pressure from major lenders, who have demanded a court-supervised auction. The parties, at the prompting of Judge Laurie Silverstein, have agreed to auction procedures, and the auction is set for October 20.
If all this was not enough, Colt faces additional pressure to work out the deal because the United Auto Workers have threatened to take the company to arbitration if it goes through with its plan to market the business to potential buyers without the union’s collective bargaining agreement.