Noteholders Take Shots at Colt Over Sciens DIP

NEW YORK ( TheDeal) -- Colt Defense has won access to $20 million in debtor-in-possession financing, in spite of senior noteholders asserting they could offer a better alternative postpetition loan.

Judge Laurie Selber Silverstein of the U.S. Bankruptcy Court for the District of Delaware in Wilmington on Tuesday, June 16, signed an interim order clearing the way for the private equity-backed firearms maker to tap the financing from pre-petition lenders.



According to a Monday DIP motion, the financing consists of a $6.67 million term loan from pre-petition senior lenders and a $13.33 million term loan from pre-petition term lenders. Cortland Capital Market Services and Wilmington Savings Fund Society are the agents on the respective loans, court papers show.

Both loans are priced at 12.5% and will mature at the earliest of 120 days after the loan closing dates, the completion of a sale of all the company's assets or confirmation of a Chapter 11 plan.

Silverstein on Tuesday also approved joint administration of Colt's case with those of nine affiliates. Colt Holding will serve as lead debtor.

Meanwhile, an ad hoc group of holders of 8.75% senior unsecured notes due Nov. 15, 2017, on Tuesday said in court papers they were willing to provide Colt with an alternative DIP. In a Monday commitment letter, the noteholders said they would provide up to $55 million in new-money post-petition financing.

Cantor Fitzgerald Securities would serve as agent under the alternative DIP, which would mature in six months or on the effective date of a reorganization plan, whichever came first. The DIP would be priced at 11%.

Cantor Fitzgerald would collect a $40,000 agent fee on the DIP closing date.

Colt could use the financing to cover working capital needs and administrative expenses.

That same group, which holds $153.34 million in face amount of the $250 million in senior notes, on Monday objected to the DIP. The noteholders asserted their DIP proposal was "economically superior" and would allow the West Hartford, Conn., company more flexibility to emerge from bankruptcy.

The group said Colt's current DIP requires the company to enter into an "accelerated sales process," culminating in an Aug. 7 sale hearing. Colt's majority owner, Sciens Capital Management Group, has agreed to serve as stalking-horse bidder for the debtor's assets, according to a Monday filing.

The noteholders said the New York private equity firm has "starved" Colt during its ownership tenure and alleged management "turned a deaf ear" to the proposals of the group during pre-petition restructuring talks.

"The only way the sponsor [Sciens] can retain its equity interest is to create a crisis that it hopes will force this court to order an expedited sales process that it has guaranteed will chill competing bids," the group said in court papers.

Sciens has agreed to assume a $35 million senior loan, a $72.6 million term loan, the DIP facilities, executory contracts and unexpired leases.

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