(Reuters) — Bankrupt gunmaker Colt Holdings received court approval on Friday for a new financing package that empowers its bondholders at the expense of its private equity owner.
Colt was cleared to borrow up to $75 million, although the company will only get $20 million in cash, with the remainder used to refinance existing loans. The package will incorporate two previously approved interim loans.
“Here are the undisputed facts. First, Colt really needs the money,” said Colt attorney Peter Friedman. “Second, Colt really needs the money.”
Sales of the company’s guns and sports rifles have dropped sharply in the past year. Once best known for the revolvers pioneered by 19th-century founder Samuel Colt, the company filed for bankruptcy in June without enough money to meet payroll.
The loan was provided by an ad hoc committee of the company’s bondholders over the objection of the private equity firm that controls Colt, Sciens Capital Management.
The loan would “give the ad hoc committee control over these proceedings, with veto power over these proceedings,” Sciens lawyer, Tony Clark, told the court.
However, Colt said it had no other option to finance its bankruptcy.
Friday’s hearing marked an about-face by Colt, which entered Chapter 11 with a plan to sell the company to Sciens for a commitment to take on some obligations, including about $105 million in loans. Under that plan, the bondholders would have received nothing for their $250 million in debt, and Sciens would not have paid any cash for its bid to retain control of Colt.
John Rapisardi, a lawyer for Colt, said the company would work with the bondholders in the coming weeks to negotiate a plan for bringing the gun maker out of bankruptcy.
Colt may still pursue a sale, Rapisardi told U.S. Bankruptcy Judge Laurie Silverstein in Wilmington, Delaware, in part because Chapter 11 was gobbling up its thin cash cushion.
Thanks to the financing package approved on Friday, bondholders would likely be in a much better position if they decided to make a bid for the gunmaker.
The bondholders include Phoenix Investment Adviser, Newport Global Advisors, BoweryInvestment Management and an affiliate of MatlinPatterson.
The case is Colt Holding Co LLC, U.S. Bankruptcy Court, District of Delaware, No. 15-11296. (Reporting by Tom Hals in Wilmington, Delaware; Editing by Christian Plumb)