More Bad news from Colt

[mgmorden]

Buyers of Colt firearms would be very finicky I suspect in who bought the Colt name. Beretta might be welcomed, but it also might not be. Uberti is looked down upon by some in the cowboy action shooting market simply because it's of Italian and not American lineage for instance.

Buyers of Colt firearms weren't enough to keep the company afloat. Colt should have looked past its traditional customers, and any company that buys the name to.

Catering to the market as a whole and ticking off some small set of purists is better than pleasing the purists and making nothing that the general market wants.

 

[Paul7]

There are times in the business world where sales are good, but because of other factors, a company is still in hot water.

 

[Aragon]

Buyers of Colt firearms weren't enough to keep the company afloat. Colt should have looked past its traditional customers, and any company that buys the name to.

That's largely because Colt carries so much debt that it has become unserviceable for a company its size. It's ridiculous to suggest that Colt would heal if only it came out with its own line of plastic fantastics.

Catering to the market as a whole and ticking off some small set of purists is better than pleasing the purists and making nothing that the general market wants.

Alrighty.

 

[atomd]

It's crazy to think of a company like Colt...which has such a rich history and then look at them today. I looked at all the products they make and can't think of one I would actually buy. Looks like I'm in the majority.

 

[ColtPythonElite]

There's absolutely nothing wrong with Colt's 1911guns. I think they are better than they have ever been.

 

[huntsman]

All this worry over nothing. That new DA revolver that's supposed to be coming out will save 'em.

Only if it's all plastic and MIM, that's where the market's at now. Cheap and trendy no more Tradition.

 

[Aragon]

It's crazy to think of a company like Colt...which has such a rich history and then look at them today. I looked at all the products they make and can't think of one I would actually buy. Looks like I'm in the majority.

Have you actually shot any new Colts lately? Not likely. Their M1911 offerings are solid as are some of their single action revolvers. Not always the best value (you pay for the name ala H&K), but good gear none the less.

 

[Old Dog]

I looked at all the products they make and can't think of one I would actually buy. Looks like I'm in the majority.

Don't know what majority you think you're in, but there are a lot of retailers that can't keep the most popular Colts in stock ... The company still produces some pretty doggone good 1911s, and the most coveted of these can be hard to find. Someone's buying 'em.

 

[Paul7]

Don't know what majority you think you're in, but there are a lot of retailers that can't keep the most popular Colts in stock ... The company still produces some pretty doggone good 1911s, and the most coveted of these can be hard to find. Someone's buying 'em.

Exactly, they are quality 1911s with few MIM parts and forged slides and frames. Don't pretend RIA, Ruger, or Remington, etc. are equal guns. Why buy a copy?

 

[Old Dog]

Yep! My Series 70 repros and Wiley Clapp LW Commander are about my favorite 1911s, period.

Some of us are sentimental about our Colts, but not solely because a Colt 1911 is so iconic. Yes, the prancing pony on the side means something to those of us who cut our teeth on the Government Model, but they are excellent guns.

(just wish we could get factory frontstrap checkering and night-sights on a couple models, though)

 

[1911 guy]

Colt has always made a good 1911, AR. SAA, etc. The problem wasn't quality of the "main" guns. It was being overpriced. Until the last two years or so, you could find two 1911s of very similar or the same specs, one by Colt and the other by Springfield, Wesson, STI, etc. The Colt would cost 1/3 more.

Some of the "non-main" guns, like a few shotguns I handled years ago, were poor quality, but those weren't the staple of Colt sales.

 

[Aragon]

Exactly, they are quality 1911s with few MIM parts and forged slides and frames. Don't pretend RIA, Ruger, or Remington, etc. are equal guns. Why buy a copy?

I certainly appreciate the historical panache of the Colt name and the horse and I do think they manufacture some excellent firearms today.

However I'm not sure they're any better than Ruger's SR1911 -- and I wouldn't put the SR1911 in the same boat as the RIA and Remington handgun offerings.

Lots of misinformation on these boards about the product quality of MIM and IC parts given their specific individual applications -- just as there is about currently produced Colt firearms.

 

[Aragon]

Colt has always made a good 1911, AR. SAA, etc. The problem wasn't quality of the "main" guns. It was being overpriced. Until the last two years or so, you could find two 1911s of very similar or the same specs, one by Colt and the other by Springfield, Wesson, STI, etc. The Colt would cost 1/3 more.

Some of the "non-main" guns, like a few shotguns I handled years ago, were poor quality, but those weren't the staple of Colt sales.

You're right. Premium prices (for the Colt name) AND unavailability of guns has been a big problem for Colt. I suspect Colt could have sold MANY more guns over the past 5-6 years had it been able to produce them.

The shotguns and other long guns were made by others and branded under the Colt name.

 

[1911 guy]

Unavailability was the nail in the coffin, I think. About two years ago, Colt realized it was losing sales because of its unreasonable demand to charge more for a rollmark. Their prices fell in line with comparable pistols from other manufacturers. Then they seemed to stop making the blasted things. Either that or they were caught flat footed by the demand caused by reasonable pricing.

Then the whole AR thing. They were selling the 6920 at less than what comparable rifles were going for. Great if you need a good rifle at a smoking deal price, but it made no sense given the pricing history of the 1911. How much money did Colt lose out on simply by not charging the extra $75 to $100 bucks per rifle? There were a LOT of these sold.

The 1873 SAA is a whole 'nuther kettle of fish. To someone who really wants one, nothing else will do. Nothing. To someone who just wants a decent revolver, there are a dozen choices at half the price. To Colt, they didn't sell enough of them to justify repairing or replacing worn tooling. This jacked up the cost to include much more hand fitting, which limited sales even more. Vicious circle.

I have a Colt pistol. My knock has never been the quality of the guns Colt made. It's just that their business model sucked. They relied too heavily on contracts and name recognition. When both of those ran out, they didn't have another rabbit lined up in the hat.

 

[Old Fuff]

The company still produces some pretty doggone good 1911s ...

Yes they do.

... and the most coveted of these can be hard to find.

Yes they are.

Someone's buying 'em.

It would seem so.

But the problem is that they don't make and sell enough of them to sustain the company and pay the bills at the same time. Production is limited for a number of reasons, not the least being that many of they're suppliers have them on a "cash in advance" basis, and the necessary cash ain't there.

Without sub-contracted parts and supplies they're stuck. :banghead:

 

[wojownik]

But the problem is that they don't make and sell enough of them to sustain the company and pay the bills at the same time.

This, my friend, may be the understatement of the week.

Colt's bills include a debt service burden for

• a $250 million issue of 8.75% unsecured notes (the bonds)
• a $33 million secured "rescue" loan
• a $70 million secured "lifeline" loan (Morgan)

That $353 million in debt to service, aside from operating costs, including vendor payments. Heck, the debt service payment on the bonds alone is something like $21.9 million per year. (loose comparison - imagine your home mortgage+credit card bills totalled $353 million ... what would your income need to be to pay that monthly mortgage bill, all your family expenses, and still sock something away for savings).

By way of comparison, Colt's annual debt service burden alone about double Smith and Wessons annual net income.

Wish they could, but I just don't see a way for Colt to sell enough product to get out of this financial mess.

This is not a simple question of "they could have made more revolvers" or they "shoulda had a polymer pistol". It's a hard, cold lesson in finance. Colt would have to figure out a way to become double or triple the size of a Smith and Wesson (income wise), literally overnight, to resolve this financial problem by increased production and sales.

I really want the pony to survive. And I'm sure it will, under some other form. But the financial analyst in me gets cold goose bumps looking at the numbers.

 

[Old Fuff]

Yup....

But if you're a tried and true fanboy (or girl ) all of this financial stuff can be overlooked. All they have to do is bring back all of their favorite models - for realistic (?) prices of course - and all will be well.

This coming Monday (May 18th, 2015) is the absolute deadline for Colt's investors to "pony up" and give the company more lease on life. Of course they can extend the deadline again, and again, and ...

But right no they're is no indication that's going to happen. Unfortunately it looks like those that are most responsible will go home rich.

 

[atomd]

Don't know what majority you think you're in, but there are a lot of retailers that can't keep the most popular Colts in stock ... The company still produces some pretty doggone good 1911s, and the most coveted of these can be hard to find. Someone's buying 'em.

This is just my opinion on the civilian side of their business. There's other issues as well of course.

Just checked buds guns. They have somewhere around 38 different models of colt handguns in stock. That's not total guns...that's the total number of different models that they have multiple guns of in stock. Now let's not pretend they are some kind of unicorn of the 1911 world. If you want one, you can get one. The problem is that people don't want them. Guys that are into 1911s know that for not that much more or sometimes even less you can get a better gun like a Dan Wesson.

Your average buyer for home defense / concealed carry usually doesn't want a $1000 1911 when they can get a gun that costs 1/2 as much and weighs much less (true that doesn't make it "better"). A lot of that market might not have ever even fired a handgun before. They are a big part of this industry too. Not every person that buys a car is Mario Andretti either.

Your high end 1911 guy doesn't want a 2015 colt because they probably already have a Colt or 2 anyways and they don't want mim parts or a plastic msh. If they are gonna spend $1000 they can pick from other makes as well. A lot of gun guys already have a 1911 or 2 in the safe anyways.

Colt just doesn't make anything that original or desirable these days. If they did, they wouldn't be on their way to going under when other companies are doing fine. The proof is in the pudding. Look at their ARs...same thing. If you knew nothing about guns and wanted an AR....are you gonna buy that colt with the A2 upper that looks like it came out of the 70s to the average person or are you going to buy the latest and greatest whizzbang keymod flat dark earth blah blah gun? I appreciate both but let's be honest....people want the latest and greatest. In fact, I bet a lot of consumers wouldn't even care if the quality wasn't quite as good as Colt but it looked really cool and had every option under the sun. That's what sells. Even if Colt was technically the best (which in my opinion they are not), people don't always buy the best.

You can argue til your face turns blue about how great they are and how they sell like crazy...but if they sold that well they wouldn't be going under. You can make niche guns and do well for yourself but you can't run a business like they do with niche guns. Even if they were kicking butt and selling guns like hotcakes, that means they can't meet the demand....which is another problem that is their fault. I don't think that's the problem though.

Their problem is they make 1911s and so does 100 other companies. Their second problem is they make AR15s and so does everyone else.

 

[orionengnr]

Over ten million dollars has been used in CNC & other equipment upgrade investments in the past 10 years.

Ten million dollars...probably more like the last 40 years...
My dad took us kids on a tour of the Colt factory in about 1968.

I'd be willing to bet it looks exactly the same from the outside. Big, 19th century brick manufacturing facility, very few windows, and more than a few of them broken. Not exactly a good part of town.

Probably not a whole lot different on the inside either. Some new machinery, but still dingy, dark and a depressing place to come to work every day. It is a 150-year old building, much like the factories that used to be littered all over the Northeast.

I grew up there...it was where everyone worked when I was a kid. In my small town we had Scovill and Ball and Socket. My aunt worked at the latter. It was good work in the post-WWII days.
It was where kids of my generation hoped to work after high school.

It was also a mind-numbing existence, and it was why many of us joined the military...to get away from working in a factory for the next 40-50 years, like our parents had.

Anyone who still works there...I am sorry for them.

 

[DPris]

Orion,
You're ludicrously behind the times.
Colt has been outa that factory for several years.
The figures I quoted you came from two different Colt reps, much more recently than 1968.
Denis

 

[wojownik]

Colt just doesn't make anything that original or desirable these days. If they did, they wouldn't be on their way to going under when other companies are doing fine. ... <snip> ...
Their problem is they make 1911s and so does 100 other companies. Their second problem is they make AR15s and so does everyone else.

This is way too simplistic. Yes, Colt's owners neglected product development in the civilian market while it chased .gov contracts. But, that's not what is killing the company. The debt burden of $300 million is killing the company. If that debt servicing albatross were to dissappear magically, Colt would be in OK condition (well, iffy condition, but roughly break-even).

That debt was NOT accrued because of what Colt produced or didn't produce. That debt was accrued by its owners- starting with Sciens Capital - and went out the door as distributions and advisory fees.

It's almost like there were two Colt's - the one that produced firearms, and then the one that was a financial game trading debt for cash-outs.

So, no, its not as simple as saying that Colt doesn't make X, or people are not buying. Fact of the matter is ... people are buying. They are moving inventory, despite themselves. It's in the numbers - there is a viable business there buried beneath that poison layer of debt.

So, while Colt (the firearms operation) could certainly have done more over the years, Colt (the financial scheme) created a suicidal debt burden to the benefit of a select few investors and advisors.

So, with that in mind, is it no wonder that Colt's bondholders and secured creditors are not budging now. The "trust factor" between creditor and equity holder is probably just about nonexistent at this point.

 

[Aragon]

This, my friend, may be the understatement of the week.

Colt's bills include a debt service burden for

• a $250 million issue of 8.75% unsecured notes (the bonds)
• a $33 million secured "rescue" loan
• a $70 million secured "lifeline" loan (Morgan)

That $353 million in debt to service, aside from operating costs, including vendor payments. Heck, the debt service payment on the bonds alone is something like $21.9 million per year. (loose comparison - imagine your home mortgage+credit card bills totalled $353 million ... what would your income need to be to pay that monthly mortgage bill, all your family expenses, and still sock something away for savings).

By way of comparison, Colt's annual debt service burden alone about double Smith and Wessons annual net income.

Wish they could, but I just don't see a way for Colt to sell enough product to get out of this financial mess.

This is not a simple question of "they could have made more revolvers" or they "shoulda had a polymer pistol". It's a hard, cold lesson in finance. Colt would have to figure out a way to become double or triple the size of a Smith and Wesson (income wise), literally overnight, to resolve this financial problem by increased production and sales.

I really want the pony to survive. And I'm sure it will, under some other form. But the financial analyst in me gets cold goose bumps looking at the numbers.

Thanks for the numbers...

"...By way of comparison, Colt's annual debt service burden alone about double Smith and Wessons annual net income..." is a shock. THAT'S why Colt is struggling -- not because it didn't introduce a line of polymer semi-autos.

If Colt's debt was slashed through bankruptcy and they got some decent management, I suspect they could become profitable -- IF the market doesn't completely tank.

I sorta wonder what Colt had to do to get the $70M from Morgan? I would have expected that all of Colt's hard assets (PP&E, inventory, etc.) would have long been factored? I think it's quite conceivable that Morgan got the last thing of real value -- Colt's name.

 

[Aragon]

Ten million dollars...probably more like the last 40 years...
My dad took us kids on a tour of the Colt factory in about 1968.

I'd be willing to bet it looks exactly the same from the outside. Big, 19th century brick manufacturing facility, very few windows, and more than a few of them broken. Not exactly a good part of town.

Actually no, you're wrong. Colt moved out of their historic Coltville complex many years ago. Their (the combined Colt Defense and Colt's Manufacturing) current building is a bland tilt-up concrete structure that's located on 22 acres in a neighboring city.

Probably not a whole lot different on the inside either. Some new machinery, but still dingy, dark and a depressing place to come to work every day. It is a 150-year old building, much like the factories that used to be littered all over the Northeast.

Wrong again. See above.

I grew up there...it was where everyone worked when I was a kid. In my small town we had Scovill and Ball and Socket. My aunt worked at the latter. It was good work in the post-WWII days.
It was where kids of my generation hoped to work after high school.

It was also a mind-numbing existence, and it was why many of us joined the military...to get away from working in a factory for the next 40-50 years, like our parents had.

Anyone who still works there...I am sorry for them.

You grew up in Cheshire, CT? Alrighty. I think manufacturing is a noble endeavor -- right behind farming. From the guys on the loading dock, to the assemblers to the plant manager. It need not be a "mind-numbing existence." No good manufacturers are. I would trade manufacturing over the military anytime.

 

[Aragon]

This is way too simplistic. Yes, Colt's owners neglected product development in the civilian market while it chased .gov contracts. But, that's not what is killing the company. The debt burden of $300 million is killing the company. If that debt servicing albatross were to dissappear magically, Colt would be in OK condition (well, iffy condition, but roughly break-even).

That debt was NOT accrued because of what Colt produced or didn't produce. That debt was accrued by its owners- starting with Sciens Capital - and went out the door as distributions and advisory fees.

It's almost like there were two Colt's - the one that produced firearms, and then the one that was a financial game trading debt for cash-outs.

So, no, its not as simple as saying that Colt doesn't make X, or people are not buying. Fact of the matter is ... people are buying. They are moving inventory, despite themselves. It's in the numbers - there is a viable business there buried beneath that poison layer of debt.

So, while Colt (the firearms operation) could certainly have done more over the years, Colt (the financial scheme) created a suicidal debt burden to the benefit of a select few investors and advisors.

So, with that in mind, is it no wonder that Colt's bondholders and secured creditors are not budging now. The "trust factor" between creditor and equity holder is probably just about nonexistent at this point.

Very well said. You're spot on. I wish more would understand what you just explained.

That said, I wonder what will happen to Colt? No doubt the name will continue. None at all. I just wonder if it will be dragged through bankruptcy? Seems inevitable at this point.

I wonder if Morgan got the name for $70M? If it did, the rest is pretty much noise...

 

[wojownik]

I wonder if Morgan got the name for $70M? If it did, the rest is pretty much noise...

I'm wondering that as well. The Colt name is an intangible asset, and lending against intangible assets is a pretty new thing (mostly because it can be so hard to do a valuation on something like a brand name)... but if a major group was to play with securing a loan against an intangible asset, I wouldn't be surprised it it were Morgan Stanley.

The $33 million loan was with Cortland, secured by a "first-priority security interest in substantially all of its assets (other than intellectual property), including accounts receivable, inventory and certain other collateral, and a second-priority security interest in its intellectual property."

So, Morgan's $70 million loan may be taking a first-priority position against Colt's intellectual property, and a second priority (behind Cortland) on the bulk of Colt's assets. That's just a guess - I think it is interesting that the terms of the Cortland credit agreement were spelled out, but there is not much out there (including in Colt's SECC filings) on how the Morgan financing is secured.