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02 Nov 2009
Approximately $380 million of rated debt affected
New York, November 02, 2009 -- Moody's Investors Service has affirmed the B1 corporate family and
probability of default ratings of Colt Defense LLC and assigned a B2 rating
to Colt's planned $225 million 2017 senior unsecured notes.
The actions follow Colt's plan to issue the notes under rule 144A
with registration rights. The note rating, subject to review
of final documentation, assumes that proceeds will be used to repay
all existing credit facility and subordinated debt and, to a lesser
extent, increase balance sheet cash for general corporate purposes.
The assigned rating also assumes a new four-year $50 million
senior secured revolving credit facility (unrated by Moody's) that will
be undrawn at close. The rating outlook is stable.
The B1 corporate family rating reflects expectation of sustained production
volumes and a moderate leverage profile in 2010 and a growing pipeline
of foreign sales prospects. The presence of Colt's $35
million cash balance as of June 2009 (and additional cash that will follow
the transaction), the expected $50 million undrawn revolver,
and likely continued internal cash flow generation reflects a good liquidity
profile, and also supports the B1 CFR. Although significant
customer / product concentration constrains rating upside, the significant
revenue growth since 2006-- stemming from substantial M4
carbine production rates for the U.S. military--
underscores Colt's long-standing position as a key U.S.
military small arms manufacturer. A substantial risk facing the
company is the potential of a competing assault rifle model to replace
the M4 as the standard issue U.S. military carbine,
which could, in turn, compromise the M4's foreign market potential.
The stable outlook reflects the large worldwide installed base of the
M4 predecessor rifles (the M16) which may help ensure the M4's eventual
penetration into foreign militaries and law enforcement agencies.
Though the U.S. Army has not yet sought an alternate M4
producer, a competing manufacturer could supply M4s within 12-18
months, now that Colt's exclusive M4 supply position to the
U.S. Army has expired. As Colt progresses toward
the September 2011 M4 Army contract expiration date, U.S.
Army M4 orders will probably decline. Lower U.S.
military orders may not be sufficiently offset by Colt's revenues
from the prospective foreign sales pipeline. Because Colt possesses
the exclusive right to U.S. Government Foreign Military
Sales of M4s through 2047, outlook stability will heavily depend
on the M4's market penetration rate.
The B2 rating on the planned $225 million unsecured note issue
reflects the B1 probability of default rating and the effectively junior
position of the notes relative to the planned $50 million senior
secured revolving credit facility. The notes, to be co-issued
by Colt Defense LLC and Colt Finance Corp. (a shell subsidiary
of Colt Defense LLC), would be guaranteed by the same guarantors
of Colt's planned $50 million revolver.
Corporate family of B1 affirmed
Probability of default of B1 affirmed
$20 million senior secured revolving credit line due July 2012
of Ba3 LGD 3, 36% affirmed, will be withdrawn following
execution of the unsecured notes transaction
$135 million senior secured term loan due July 2014 of Ba3 LGD
3, 36% affirmed, will be withdrawn following execution
of the unsecured notes transaction
$225 million senior unsecured notes due 2017 expected to be assigned
B2 LGD 4, 59%
The principal methodology used in rating Colt was Aerospace / Defense,
published in January 2007, which can be found at www.moodys.com
in the Rating Methodologies sub-directory under the Research &
Ratings tab. Other methodologies and factors that may have been
considered in the process of rating Colt can also be found in the Rating
Methodologies sub-directory on Moody's website.
Moody's last rating action on Colt occurred November 3, 2008
when the corporate family rating was raised to B1 from B2. For
further information please see the credit opinion on moodys.com.
Colt Defense LLC, headquartered in West Hartford, CT,
manufactures small arms including the M4 carbine and M16 rifle for the
U.S. military, U.S. law enforcement
agencies, and foreign allied militaries.
Andris G. Kalnins
Senior Vice President
Corporate Finance Group
Moody's Investors Service
Moody's assigns B2 to Colt's $225 million sr unsecured note, affirms B1 CFR
Corporate Finance Group
Moody's Investors Service
No Related Data.
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