Colt Defense, LLC, a maker of firearms for 179 years has filed for Chapter 11 bankruptcy in the U.S. Bankruptcy court in Wilmington, Delaware. Officials say they plan to financially restructure as to allow for an “accelerated sale” of business operations in the U.S. and Canada.
According to Bloomberg, the firearms maker has been struggling financially due to delays in government and foreign sales, as well as a change in the demand for sport rifles and commercial handguns. One of the chief suppliers of M4 rifles to the U.S. Military for decades, they lost their contract with the military in 2013 and the company has never recovered.
Problems in quality were a contributor in the demise of the company. Soldiers who relied on the M4 criticized the guns for malfunctioning once they got dirty, as they did in Afghanistan and Iraq. Though the gun came in dead last in a comparison “extreme dust test” in 2007, the Pentagon declared their support for the Colt model. However, special operations and other special forces who had more money began selecting other guns more often for their use before the Pentagon finally broke off their contract with Colt.
Another trouble that Colt faced was the rejection by many law enforcement agencies of their 1911 gun, citing a long line of complaints about the gun jamming, and selecting Glock pistols as sidearms instead. And still other problems stemmed from the corporate structure, divided between military and private gun owner interests, that prevented them from taking advantage of a surge in gun sales that coincided with the election of President Obama in 2008.
Stirred by NRA-fueled rumors that the Democratic President would soon heighten gun control, many rushed to buy guns, sweeping gun dealers’ shelves of ammo and weaponry. While many better-prepared gun manufacturers were able to see a rise in profits, Colt had to sell their rifles to the manufacturing arm of the company, and then get the rifles to the distributors, an extremely slow process.
The Company Will Remain Open
Though the company is declaring Chapter 11 in its bankruptcy proceedings, it will still remain open to restructure the company financially. The company took out an emergency $70 million loan from Morgan Stanley to pay interest in November of 2014, but they were not able to meet their first interest payment in June. It also took a $33 million restructuring deal with a hedge fund agency this year to free up more of its liquid assets.
The company currently plans to restructure financially and keep their commitments to consumers, vendors, suppliers, and staff. The manufacturer will stay open, and has selected a “stalking horse bidder” of Sciens Capital Management, LLC for their assets and liabilities and will keep Colt’s current management team.
Though their consumer confidence and their ability to meet consumer manufacturing demands is fragile, there is optimism that the restructuring of the company will help the company keep their production and financial commitments.