Remington Outdoor, the 200-year-old maker of rifles, handguns and bullets controlled by Cerberus Capital Management, filed for bankruptcy over the weekend, after the election of a "true friend" to the White House ironically wound up stifling sales.
The chapter 11 filing in Delaware bankruptcy court Sunday came with a revised plan to eliminate $620 million in debt, pay most creditors in full, and hand over most of the company to a group of lenders. Remington, which makes weapons for military, law enforcement, and hunting customers, had already outlined a plan on Feb. 12 to file for bankruptcy and give control to lenders including Franklin Resources Inc. and JPMorgan Asset Management.
The filing came after a weekend of marches across the U.S. seeking tighter laws to fight gun violence. Remington said in court filings that its efforts to finance a turnaround were complicated by parties who were reluctant to lend to a gunmaker. After approaching 30 potential lenders, financial adviser Lazard Freres & Co. found "the vast majority" indicated "they were reluctant." Eight parties who entered into further discussions later declined, and one outside lender who had agreed to provide a $100 million bankruptcy loan changed its mind, according to the filing.
Surprised by the election
Remington's fortunes took a hit last year after the election of Donald Trump, a self-proclaimed " true friend" of the gun industry. Gun enthusiasts traditionally stock up on firearms at times when political winds suggest tighter gun control lies ahead. But Hillary Clinton's defeat erased those fears, leaving retailers stuffed with unsold inventory.
Chief Financial Officer Stephen P. Jackson described the reason for the company's demise as a "significant decline" in sales and revenues in the last year after it had increased production rates to meet demand in 2017 that never materialized.
The Madison, North Carolina-based company has 2,700 employees at seven U.S. manufacturing plants, according to court filings. It plans to win bankruptcy court approval of the restructuring by May 3.
The turnaround differs slightly from a prior plan already negotiated with lenders that would cut debt by about $700 million and inject $145 million of new capital. The current plan will eliminate $620 million of funded debt in exchange for equity in a new company. Financing to get that done totals $338 million, including a $193 million asset-based loan, a $100 million debtor-in-possession financing loan, and a $45 million "bridge" or "rescue" loan from Remington's parent company to its operating subsidiaries.
After the outside lender backed out of the $100 million loan, Remington got financing on better terms from its term-loan lenders and secured noteholders, according to the filing. The company seeks to keep fees for the loan under seal, according to a court request.
The reorganization will convert the rescue loan into 17.5 percent of equity in a new company, and the $100 million loan will convert to an exit loan, while the asset-based loan will be repaid in cash, according to court papers. Pre-bankruptcy term loan lenders will get 82.5 percent of the new parent entity, while third lien lenders will get cash and warrants. Current equity will be canceled.
The company has asked to forgo the usual procedure of filing a full schedule of its debts and assets and seek final approval of a plan by May 3.
Recent setbacks for Remington have included an aborted public offering in 2011 and an investor revolt after one of its rifles was used in the Sandy Hook Elementary School mass shooting.
The troubles have been a blow to Cerberus, owned by private-equity billionaire Stephen Feinberg, who has been a prominent Trump supporter. New York-based Cerberus acquired Remington in 2007 and saddled it with almost $1 billion in debt.
After the Sandy Hook shooting, Cerberus announced it would sell the company, as its own agitated investors demanded an exit, but it failed to find a buyer.
Concerns about rising gun violence, mass shootings and accidents have prompted litigation, some of it including Remington. In 2016, the Massachusetts attorney general sought information from the company on complaints and recalls, citing an investigation into its compliance with state laws and regulations on gun safety. Remington has also been sued by individuals claiming some guns are defective, and voluntarily recalled some of its models.
The industry came under added pressure in February when a gunman using an AR-15 assault rifle was used in the Stoneman High School mass murder in Parkland, Florida, just days after Remington announced plans for a pre-arranged bankruptcy. That weapon was a Smith & Wesson, made by a unit of American Outdoor Brands Corp.
Remington, which began with a hand-built rifle in 1816, went on to supply more than half the ammunition used by U.S. and its allies in World War I and World War II, according to its website. It currently employs 3,500 people and is among the largest American manufacturers of ammunition and firearms.
More than 11 million firearms were manufactured in the U.S. in 2016, up from fewer than four million a decade ago, according to data from the Bureau of Alcohol, Tobacco, Firearms and Explosives.
Another pillar of American gun industry, Colt Holding Co., also took a trip through bankruptcy in 2015.