Colt announced Sunday it is filing for bankruptcy because of excessive debt, loss of a major military contract, and failure to capitalize on the recent boom in weapon sales. It has received $20 million from its senior lenders in order to remain in business while in bankruptcy.
Colt’s problems began in 2013 when they lost their contract to supply M4 rifles to the U.S. military. The Pentagon instead awarded the $77 million contract to F.N. Herstal, a Belgium-based arms manufacturer. According to Foreign Policy, the Belgian rifles allow for continuous fire while the Colt fires in three-round bursts.
Colt’s rifle failed in other ways as well. Colt’s M4 rifle performed poorly in an “extreme dust test” that tested M4 rifles made by several manufacturers, as reported by The Daily Beast. Delta Force replaced the Colt M4 with the H&K 416 after discovering the H&K 416’s piston operating system significantly reduced malfunctions and increased the life of its parts.
In addition, many law enforcement officers are now using Glock pistols instead of Colt’s 1911. Many police have complained about jamming in that Colt model.
The corporate structure of Colt also prevented the company from profiting from the surge in weapon sales after Obama was elected. Colt had created two separate business lines for its private gun owner business and its military contracts. In Bloomberg Business, Paul M. Barrett wrote about Colt’s financial issues:
“Whipped up by NRA warnings that the Democratic president intended to toughen gun control, consumers cleared gun store shelves of ammunition and weapons. Better-prepared manufacturers such as Glock saw sales rise sharply. Under the terms of the Colt split, however, Colt Defense could reach the booming civilian market only by first selling its rifles to Colt’s Manufacturing, a debilitated company with sclerotic lines of distribution.”
According to the Wall Street Journal, Morgan Stanley loaned Colt $70 million last year, but in February, Colt said it would be unable to make an interest payment due on June 15. It failed to make the payment or negotiate a deal with creditors.
Colt will try to manage its $355 million debt burden with an auction of its business that will raise funds to repay its lenders. Colt will use the $20 million loan to allow its manufacturing operations to continue in bankruptcy. Colt hopes to remain in business after bankruptcy restructuring.